(Adds comment, updates prices) * Dollar holds close to near three-week peak * Silver set for second week of decline * Palladium down 4% this week Sept 17 (Reuters) - Gold recouped some losses on Friday after a drop of nearly 3% in the last session, but a firm dollar kept bullion on course for a second weekly decline with the focus still on next week’s Federal Reserve meeting. Spot gold was up 0.3% to $1,758.00 per ounce by 1157 GMT, while U.S. gold futures gained 0.2% to $1,759.50. Bullion slipped nearly 3% on Thursday after an unexpected increase in U.S. retail sales raised expectations that the Fed may reduce its stimulus sooner, which also drove a rally in the dollar. The dollar held close to near a three-week peak, increasing gold’s cost for buyers holding other currencies, and putting bullion on course for a 1.6% decline this week. “Everybody is watching the Fed like hawks. It would be very tempting after a $40 fall (to look for an entry point) despite the fact that the tapering debate is still going,” StoneX analyst Rhona O’Connell said. “Investors are going to scour (Fed Chair) Jay Powell’s press conference for economic projections,” O’Connell said, adding that a really hawkish shift from the U.S. central bank would not stop the possibility of another knee-jerk downward reaction in gold even if it had been priced in already. The Fed’s policy-setting committee will meet on Tuesday and Wednesday. “Gold bugs are trying to dust themselves off” after the steep decline, said Han Tan, chief market analyst at Exinity. Should U.S. monetary policy normalisation loom closer, that should heap more downward pressure on prices, Tan added. Unwinding of economic support measures not only dim gold’s status as a safe haven, but any subsequent increase in interest rates would translate to a higher opportunity cost of holding non-yielding assets like bullion. Silver was little changed at $22.94 per ounce, after hitting its lowest level in more than a month on Thursday. Platinum rose 1.5% to $947.15, while palladium gained 0.1% to $2,052.49. (Reporting by Arundhati Sarkar in Bengaluru Editing by Robert Birsel and Paul Simao)