* Likely debt ceiling extension calming effect on market-analyst * Dollar near one-year high * Palladium set for best day in two weeks (Updates prices) Oct 7 (Reuters) - Gold fell on Thursday as a drop in U.S. weekly initial jobless claims, ahead of the monthly jobs data later this week, boosted Treasury yields and stoked bets that the U.S. Federal Reserve may soon start winding down its economic support. Spot gold was down 0.3% at $1,757.30 per ounce by 13:34 p.m. EDT (1734 GMT). U.S. gold futures settled 0.2% lower at $1,759.2. The number of Americans filing new claims for jobless benefits dropped by the most in three months last week, suggesting the labor market recovery was regaining momentum after a recent slowdown. “That report helped to push bond yields up and rally the U.S. stock market a little bit, pressuring gold,” Jim Wyckoff, senior analyst with Kitco Metals. Reduced stimulus and higher interest rates lift bond yields, translating into increased opportunity costs of holding non-yielding bullion. Also, the U.S. debt limit is likely being pushed to December. So, that was a calming effect on the marketplace, bullish for stocks and bearish for gold, Wyckoff added. The dollar eased slightly from near a one-year high, buoyed by lingering inflation concerns and expectations the Fed would have to act sooner to normalise policy. While gold is traditionally considered an inflation hedge, a stronger dollar makes it more expensive for holders of other currencies. A strong showing of private jobs in September ahead of Friday’s employment numbers also encouraged bets that the Fed could start tapering soon. But given the “record high” number of open job positions in the United States, a “positive surprise on the non-farm payrolls should be adjustable for the gold market without causing a major sell-off”, Julius Baer analyst Carsten Menke said. Spot silver steadied at $22.59 per ounce, platinum fell 0.2% to $982.37, and palladium jumped 3.7%, on course for its best day since Sept. 22, to $1,958.61. (Reporting by Bharat Govind Gautam and Arundhati Sarkar in Bengaluru; Editing by Uttaresh.V and Shailesh Kuber) Our Standards: The Thomson Reuters Trust Principles.