* Dollar hits 2021 peak * U.S. federal government shutdown likely to help gold - analyst (Updates prices, adds details) Sept 29 (Reuters) - Gold fell to its lowest in seven weeks on Wednesday as the dollar rose and on expectations the U.S. Federal Reserve could soon begin winding down its economic support measures. Spot gold was down 0.7% at $1,722.50 per ounce by 1:32 p.m. EDT (1732 GMT), after hitting its lowest since Aug. 10 at $1,720.49. U.S. gold futures settled 0.8% lower at $1,722.9. The appreciating dollar is limiting gold’s upside, said Jim Wyckoff, senior analyst at Kitco Metals, making the metal more expensive to holders of other currencies. “(If) stock markets become unstable again, gold could see better safe-haven demand entering the historically turbulent month of October,” Wyckoff added. The dollar, an alternate “safe haven”, rallied to a one-year high against rival currencies, even though a deadlock in Washington over the U.S. debt ceiling threatened to plunge the government into a shutdown. If the government does start to shut, it could lift gold and silver due to their safe-haven appeal, Wyckoff added. Providing some respite to gold, 10-year U.S. Treasury yields eased, although they held above 1.5%, a level not seen since late June, still posing a challenge for bullion. Yields have risen on expectations for a sooner-than-expected rate hike by the Fed, which could translate to more losses for gold, FXTM analyst Lukman Otunuga said, as it would raise the opportunity cost of holding non-yielding bullion. Philadelphia Fed Bank President Patrick Harker said “it will soon be time to begin slowly and methodically” tapering bond purchases. Gold may be influenced by speeches from central bankers as well as the August print for the Fed’s preferred inflation gauge, Otunuga added. In other metals, silver fell 4.3% to $21.47 per ounce, platinum shed 2.3% to $944.88. Palladium fell 1.4% to $1,850.00. (Reporting by Arundhati Sarkar in Bengaluru; Editing by Amy Caren Daniel and Vinay Dwivedi) Our Standards: The Thomson Reuters Trust Principles.