(Recasts, updates prices) * If yields keep rising, headwinds will be significant- analyst * Palladium at lowest in over one week Oct 18 (Reuters) - Gold edged lower on Monday as a rise in U.S. Treasury yields dented its appeal, although a risk-off sentiment in wider financial markets limited losses for the metal. Spot gold was down 0.1% at $1,765.14 per ounce by 1:35 p.m. EDT (1735 GMT), while U.S. gold futures settled down 0.2% at $1,765.70. “If yields keep rising, the headwinds will remain significant for gold,” OANDA analyst Craig Erlam said. “Unless markets start to price in bad news for the economy and stock markets, which may be a rational next step if policymakers insist on tightening even as the recovery remains sluggish and downside risks significant.” Sentiment in wider financial markets remained weak as economic growth in China slowed, while a relentless surge in oil prices fuelled concerns about elevated inflation. U.S. benchmark 10-year Treasury yields climbed as investors ramped up rate hike bets, while the dollar index held steady. While gold is seen as an inflation hedge, it also contends with the greenback for safe-haven status. Reduced central bank stimulus and the prospect of interest rate hikes push government bond yields up, weighing on non-yielding bullion. Investors increasingly expect the U.S. Federal Reserve to start tapering asset purchases after data showed a solid increase in U.S. consumer prices last month. “In the event that the Fed hastens its policy tightening agenda, strengthening the dollar along the way, that should weaken the floor below bullion,” said Han Tan, chief market analyst at Exinity. Other precious metals also dipped, with silver down 0.3% at $23.21 per ounce and platinum slipping 1.8% to $1,035.29. Palladium shed 3.3% to $2,005.07, its lowest in over a week. (Reporting by Bharat Govind Gautam, Arundhati Sarkar and Ashitha Shivaprasad in Bengaluru; Editing by Shailesh Kuber and Aditya Soni) Our Standards: The Thomson Reuters Trust Principles.