* Dollar index falls to lowest in nearly eight weeks
* Palladium hit record high of $2,925.14 on Friday (Recasts, adds comment, updates prices)
By Sethuraman N R
April 26 (Reuters) - Gold prices held firm on Monday, supported by a weaker dollar ahead of the U.S. Federal Reserve's meeting this week, while supply worries kept palladium near record highs hit in the previous session.
Spot gold XAU= was up 0.1% at $1,779.73 an ounce by 0931 GMT. U.S. gold futures GCv1 rose 0.1% to $1,779.60.
"We have seen some short-term buying interest come back into the market in line with the weaker dollar and lower bond yields. But if we fail to break higher soon, then there is a risk we could run into some renewed period of profit taking," said Saxo Bank analyst Ole Hansen.
"The main focus this week will be the FOMC (Federal Open Market Committee) meeting on Wednesday and what kind of signals that will be sent from there."
Gold prices have not been able to move forward despite a weaker dollar and lower U.S. Treasury yields because of the metal's failure to break above the psychological $1,800 barrier, analysts said.
The dollar slumped to an almost eight-week low against other major currencies on Monday. FRX/
Market participants are awaiting the Fed's two-day policy meeting starting on Tuesday, with the focus on the tapering of bond purchases. gold could retest resistance at $1,792 an ounce, having stabilised around a support at $1,772, said Reuters technical analyst Wang Tao. XPD= rose 1.2% to $2,888.75 an ounce after a record peak of $2,925.14 on Friday.
"The (palladium) price is finding tailwind from the prospect of a renewed supply deficit," Commerzbank (DE:CBKG) analysts said in a note.
"This (higher price) is the result of robust demand from the automotive industry due to tougher emissions regulations for cars with combustion engines coupled with reduced supply."
Silver XAG= rose 0.3% to $26.07 an ounce while platinum XPT= was up 0.5% at $1,236.