* Dollar hovers close to a near two-week peak
* Palladium soared to a record high in the last session
* Silver, platinum off more than two-month highs hit on Tuesday (Updates prices)
By Sethuraman N R
May 5 (Reuters) - Gold prices edged lower on Wednesday as the possibility of higher U.S. interest rates supported the dollar, while palladium held near record highs hit in the previous session amid supply worries.
"The dollar index bounced back last week and has generally risen this week. That's kind of providing some downward pressure on gold prices," said Fawad Razaqzada, analyst with ThinkMarkets.
"Treasury Secretary Janet Yellen clearly said that rates need to go up higher at some point of time. The key question is how fast they will rise as the Federal Reserve has remained quite dovish."
The dollar index .DXY was hovering close to a near two-week peak against its rivals. USD/
Yellen on Tuesday said she saw no inflation problem brewing, downplaying earlier comments that rate increases may be needed to stop the economy overheating as U.S. President Joe Biden's spending plans boost growth. interest rates dull gold's appeal as it increases the opportunity cost of holding non-yielding bullion.
Meanwhile, investors await U.S. services data on Wednesday and April payrolls on Friday for cues on the health of the U.S. economy. palladium XPD= rose 0.4% to $2,996.36 per ounce, after hitting an all-time high of $3,017.18 in the previous session, driven by concerns of a shortage of the metal.
Palladium, used mainly in emission-reducing auto catalysts for vehicles, has risen more than 22% so far this year.
"A rebound in industrial activity will bode well for the demand for silver," said Nitesh Shah, director, research, WisdomTree.
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