* European shares under pressure

* Dollar index steady, on course for weekly fall

* Chinese prices at discount of $1 per ounce; demand weak

(Updates throughout, changes dateline from SINGAPORE)

By Clara Denina

LONDON, April 11 (Reuters) - Gold steadied below 2-1/2 week highs on Friday, heading for its best week in a month on sagging risk appetite and increasing hopes the U.S. Federal Reserve will hold off on raising interest rates as soon as early next year.

A day earlier, bullion hit its highest since March 24 at $1,324.40 an ounce bolstered by the Fed's March meeting minutes which showed officials were not keen on increasing interest rates straight after unwinding bond purchases, as the markets had feared.

Spot gold XAU= was unchanged at $1,319.03 an ounce at 0955 GMT. It is up 1.2 percent for the week and on track for its second straight week of gains.

Gold futures GCcv1 for June delivery were down 0.1 percent

to $1,319.40 an ounce.

"What we saw this week was quite interesting because it emphasises the rolling back of the seemingly hawkish stance that we saw at the previous meeting and I think gold is taking some comfort from that," Mitsubishi Corp. analyst Jonathan Butler said.

"We have no central banks' particular releases next week, although the Fed's Chair Yellen is speaking at quite high-profile conferences and attention will be there."

European shares dropped sharply, while the dollar was flat versus a basket of currencies, still down 1.2 percent for the week, its biggest weekly loss in nine months. The yield on 10-year U.S. Treasury notes fell to their lowest since Feb. 27 at 2.62 percent. MKTS/GLOB

Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest.

Gold had come under pressure, falling to a seven-week low of $1,277.90 on April 1, on signs that strong economic data in the United States could prompt further dollar strengthening and after Fed Chair Janet Yellen on March 19 hinted at the chance of hiking interest rates in the first half of 2015.

Low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, had been an important factor driving gold higher in recent years.

Political tension further dampened investor risk appetite after Russian President Vladimir Putin warned gas supplies to Europe could be disrupted if Moscow cuts the flow to Ukraine over unpaid bills. ID:nL6N0N24S3

Gold gains were however capped by continuing outflows from gold funds and weak physical demand in Asia.

Outflows from SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, slowed on Thursday to about 0.26 tonnes, compared with 2.70 tonnes earlier in the week.

GOL/ETF

The fund still hasn't seen any inflows since March 24, implying underlying bearishness.

"We observe quite mixed sentiment towards gold, but equally it's not very extreme," UBS said in a note. "This allows the market to turn on or off to gold quite quickly and frequently."

PHYSICAL DEMAND

Buying in Asia has been quiet for over a month now, with top purchaser China on the sidelines due to a drop in the yuan.

ID:nL4N0MW0F9

Prices XAU9999=SGEX briefly turned to a premium this week but fell back down to a discount of about $1 on Friday.

Gold and silver imports into India, the world's second-biggest buyer of it, dropped 40 percent to $33.46 billion in 2013/14. ID:nD8N0N000C

In other precious metals, silver XAG= rose 0.3 percent to $20.06 an ounce, while platinum XPT= was up 0.5 percent to $1,455.00 an ounce and palladium XPD= gained 0.1 percent to $787.30 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; editing by Jason Neely)

((clara.denina@thomsonreuters.com)(+44 207 542 9420)(Reuters Messaging: clara.denina.thomsonreuters.com@reuters.net))

Keywords: MARKETS PRECIOUS/