* Dollar falls against currency basket
* Market focuses on pace of Fed tightening
* Platinum recovers from near 7-year low
* Palladium turns up after touching lowest since late-August (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, Nov 19 (Reuters) - Gold rose 1 percent on Thursday, rebounding from near six-year lows as indications from the U.S. Federal Reserve that it may move cautiously into the rate hiking cycle weighed on the dollar and prompted investors to cover short positions.
Fed officials on Wednesday continued to flag December as a likely time for U.S. interest rates to rise after seven years near zero, but the central bank signaled an intention to proceed slowly and steadily after that. ID:nL1N13D20B
Rising rates tend to weigh on gold, as they lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. Expectations that rates will rise have pushed gold prices down 9 percent this year.
Spot gold XAU= was up 1 percent at $1,081.01 an ounce at 2:51 p.m. EST (1951 GMT), after rising as much as 1.5 percent to $1,086.10. The metal hit its weakest since February 2010 on Wednesday at $1,064.85.
U.S. gold futures GCv1 for December delivery settled up 0.9 percent at $1,077.90.
"It was a consolidation (day) and certainly with the dollar weakening, that took one of gold's biggest burdens away," said Bill O'Neill, co-founder of commodities investment firm Logic Advisors in New Jersey.
"It's a case of sell the rumor, buy the news today. This certainly shouldn't be taken as a signal that the market's bottomed."
Gold prices pared gains after Atlanta Fed President Dennis Lockhart said the central bank may be heading for a "slow ... halting" effort to raise rates after it begins its first tightening cycle in about a decade. urn:newsml:reuters.com:*:nL1N13E217
"I think this is pre-Thanksgiving week short-covering which has its roots in the Fed minutes yesterday," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.
"(These) basically still imply a December hike, but they changed the wording slightly. That has made people think it might not be such a one-way bet after all."
The dollar fell against most other major currencies, with some analysts arguing that it will now take more than next month's expected action on U.S. monetary policy to drive it higher. FRX/
Key stock markets in Europe and Asia rallied, while U.S. stock indexes were little changed. MKTS/GLOB
Silver XAG= was up 0.4 percent at $14.23 an ounce.
Platinum XPT= was up 0.5 percent at $851.49 an ounce, recovering from Wednesday's seven-year low reached despite an expected deficit this year. ID:nL8N13B4DZ
Palladium XPD= was up 0.8 percent at $537.60 an ounce after falling to the lowest since late-August at $523.35.