* Speculators cut gold, silver longs
* SPDR Gold holdings rise 0.4 pct on Friday
* Platinum off over 7-mth lows hit on Friday (Updates prices)
By Sethuraman N R
Oct 17 (Reuters) - Gold prices rose slightly on Monday as the U.S. dollar pared gains and bargain hunters used dips to accumulate the precious metal.
Spot gold XAU= rose as much as 0.5 percent to $1,256.11, and was up 0.4 percent at $1,254.60 an ounce at 0729 GMT. The yellow metal fell nearly 0.6 percent on Friday to a low of $1,247.01, its lowest since Oct. 7.
U.S. gold futures GCcv1 were flat at $1,255.60 an ounce.
"Because the possibility of a December rate hike is increasing, generally, the trend of gold price is downwards but in the short term we think that there could be relatively a mild technical correction," said Jiang Shu, chief analyst at Shandong Gold Group.
Shu expects prices to touch $1,270 in the short term before a sharp selloff on expectations of a rate hike.
"There's still a period of time before the rate hike."
U.S. producer prices rose in September to post their biggest year-on-year rise since December 2014, while retail sales gained 0.6 percent after a 0.2-percent decline in August. economic data from the U.S. usually puts pressure on gold prices as investors raise bets on an interest rate hike that would increase the opportunity cost of holding non-yielding bullion.
Fed Chair Janet Yellen gave a broad review of where the U.S. economic recovery might still fall short. not addressing interest rates or immediate policy concerns directly, Yellen laid out the deepening concern at the Fed that U.S. economic potential is slipping and aggressive steps may be needed to rebuild it.
"Though there is not much activity, the metal (gold) is finding good interest in small amounts in China at this price," a trader with a China-based bank said.
The dollar index .DXY , which measures the greenback against a basket of currencies, was flat at 98.016 after touching a high of 98.169.
Hedge funds and money managers again reduced their net long positions in COMEX gold and silver contracts in the week to Oct. 11, U.S. Commodity Futures Trading Commission data showed on Friday. of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, rose 0.40 percent to 965.43 tonnes on Friday. GOL/ETF
Silver XAG= was up 0.4 percent at $17.44 a ounce.
Platinum XPT= rose 0.9 percent to $941. It touched an over 7-month low of $923.50 on Friday. Palladium XPD= was up 0.6 percent at $648.10, after hitting nearly a three-month low of $629.22 in the previous session.