* Dollar index falls to fresh 7-week low
* U.S. Fed seen raising interest rates in Sept
* Palladium hits fresh 5-month high (Recasts, updates prices, adds details; changes location dateline)
By Maytaal Angel
LONDON, Sept 20 (Reuters) - Gold steadied on Thursday as the dollar slumped, its safe-haven appeal lessened by fading fears over Sino-U.S. trade tensions and as investors opted for assets perceived as more risky, like stocks.
The dollar hit a fresh seven-week low against a basket of major currencies, while world stocks inched up amid continued relief that fresh U.S. and Chinese tariffs on reciprocal imports were less harsh than originally feared.
“America is killing itself with these trade tariffs. (They) actually hit America far harder than (they) hit China. The idea that the dollar is all mighty and going to continue to rise is not true,” said Alasdair Macleod, head of research at GoldMoney.com.
“Gold traders are sitting on short positions (but) if the dollar comes down another notch or two, shorts in gold will start to panic. When gold starts moving, it (could) start moving very sharply (higher).”
A weak dollar makes dollar-priced gold cheaper for non-U.S. investors.
Spot gold was flat at $1203.18 at 1045 GMT, after rising 0.5 percent in the previous session.
U.S. gold futures were flat at $1,202 an ounce.
Investors have been buying the dollar and selling gold in recent months believing the United States has less to lose from a trade dispute than China. But they may be losing faith in the ability of the U.S. economy to withstand a trade war with China.
A new Reuters poll showed unanimous agreement that a trade war with China was bad economic policy for the United States, predicting U.S. growth would slow to 2.0 percent in the fourth quarter, less than half the last reported rate of 4.2 percent.
Gold has declined around 12 percent from a peak in April amid the intensifying U.S.-China trade dispute, the dollar rally and rising U.S. interest rates.
Investors are waiting for what is expected to be a hawkish meeting of the U.S. Federal Reserve next week, where the central bank is widely expected to raise benchmark interest rates.
Spot silver was flat at $14.22 an ounce, after touching two-week highs at $14.35. Palladium climbed 0.7 percent to $1041.50, having hit a fresh five month high of $1,043.
Platinum gained 0.3 percent to $823.20, after hitting its highest since Aug. 13 at $826.40 in the previous session. (Additional reporting by Nallur Sethuraman in Bengaluru; Editing by Kirsten Donovan)