* Gold eases after 1.5 pct gain on Thursday
* Prices still set for 1.4 pct weekly gain
* GRAPHIC-2016 asset returns: http://reut.rs/1WAiOSC (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, April 8 (Reuters) - Gold weakened on Friday as strength in equities prompted investors to cash in some of the previous day's gains, remaining on track for its biggest weekly rise in five weeks as the Federal Reserve remained cautious on U.S. interest rate increases.
Global stock markets rebounded but still were set to end a bruising and volatile week lower, fed by growing uncertainty surrounding the U.S. economic and policy outlook. MKTS/GLOB
Spot gold XAU= was down 0.1 percent at $1,239.70 an ounce by 2:27 p.m. EDT (1827 GMT), while U.S. gold futures GCv1 for June delivery settled up 0.5 percent at $1,243.80 an ounce.
Spot prices are up 1.4 percent this week, chiefly because of Thursday's 1.5 percent rally.
The metal has been hemmed into a narrow range by uncertainty about the path the U.S. central bank will take to raising interest rates.
"Gold prices rallied because the market anticipated a change in the Fed's rate hike outlook," said Stefan Wieler, vice president of GoldMoney in Vancouver. "Now the Fed says two hikes, the market thinks zero, and gold prices hover somewhere around $1,200-$1,250 until this question gets answered."
Fed Chair Janet Yellen, in a conversation with former Fed chairmen on Thursday, said the U.S. economy is still on track to warrant further rate rises. But U.S. interest rate futures still indicate a less than 20 percent chance of a rate increase in June 0#FF: . rates would weigh on gold by lifting the opportunity cost of holding non-yielding bullion. Waning expectations for further rate increases this year helped gold to its best quarter in nearly 30 years in the three months to March.
"Janet Yellen said (the Fed) will be moderate in making hikes in the future, so the markets no longer anticipate the four interest rate hikes they did at the end of 2015," LBBW analyst Thorsten Proettel said.
Proettel said he remains bearish on prices, saying that positioning on the futures markets looks overstretched, while inflows into gold-backed exchange-traded products are drying up.
Data from the world's largest gold-backed exchange-traded fund - New York-listed SPDR Gold Shares GLD - showed its holdings are little changed this week after posting the year's first weekly outflow last week. for physical gold from Asia also has been muted of late, analysts said.
In other precious metals, silver XAG= was up 0.8 percent at $15.34 an ounce, platinum XPT= gained 1.3 percent to $964.60 and palladium XPD= rose 0.4 percent to $535.20.
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