BENGALURU, Jan 8 (Reuters) – Gold prices fell on Tuesday as risk appetite improved on bets China and the United States may be closing on a trade deal, and as the dollar bounced off a 2-1/2-month low hit in the previous session. Spot gold was down 0.6 percent at $1,281.32, as of 0738 GMT, while U.S. gold futures were 0.5 percent lower at $1,283.10 per ounce. “Because of improved investor sentiment, gold is coming off its highs and may have to stay around the current levels,” said Mark To, head of research at Wing Fung Precious Metals in Hong Kong. “The market has been troubled by uncertainties around trade war and interest rate hikes. However, now most of the stake holders, including the authorities in U.S., China and Fed, are trying to cooperate and put up a positive tone and create a stable environment for investors.” Asian shares were mixed on Tuesday, following a surge in Wall Street. But, investors hope that Washington and Beijing may be inching towards a trade deal after positive comments from U.S. Commerce Secretary Wilbur Ross. “A lot of people had gone long in gold as they bet that economic growth in U.S. and China might slow down due to the trade war,” said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai. “If there are positive outcomes (in the trade talk) there could be some profit taking (in gold).” The dollar index was up about 0.3 percent, moving away from a 2-1/2-month low hit in the previous session after U.S. Federal Reserve chief Jerome Powell hinted on Friday that the central bank could pause its multi-year rate-hike cycle. Gold is trading lower as the dollar is showing early signs of shaking off its recent bout of Fed-induced weakness, said Stephen Innes, APAC trading head at OANDA. “However, the positive chatter around U.S.-China trade tensions will temper expectations (for the dollar),” Innes said. A weaker dollar makes dollar-denominated gold more affordable for buyers using other currencies. Gold prices have gained about 11 percent since hitting a more than 1-1/2-year low in mid-August due to tumultuous stock markets and a slightly weaker dollar. Bullion prices hit their highest since June 2018 at $1,298.42 on Friday. Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, saw a bit of outflows on Friday. But, holdings are still at their highest since August 2018, underpinning demand for the safe-haven metal. Palladium, was flat at $1,299.30 an ounce, but was still in the vicinity of the record high of $1,313.24 hit in the previous session. The metal was trading at a premium to gold. Silver edged about 0.9 percent lower to $15.51 per ounce, while platinum fell 0.7 percent to $816.50, having hit its highest in more than a month at $831.10 on Monday.