Gold prices hovered near two-month lows in thin trading on Monday as the U.S. debt ceiling agreement eased investor worries and weighed on safe haven assets, while chances of the Federal Reserve raising rates dampened the demand for bullion.

Spot gold was little changed at $1,946.24 per ounce by 1159 GMT, while U.S. gold futures inched up 0.1% to $1,945.20.

The news of a debt deal being finalised in Washington, which still has to pass through Congress, came on a low-volume day with the United States and parts of Europe, including Britain, on holiday.

"Until a couple of days ago, a majority of investors were betting that the Federal Reserve was remaining steady with rates and would not raise them in the coming month," said Carlo Alberto De Casa, external analyst at Kinesis Money.

Last week's economic data changed that view, with the Fed now expected to raise rates in its June 13-14 meeting. Fed Fund futures showed a 59.4% chance of a 25-basis-points increase, with rates peaking in July at 5.318%.

Gold, which offers no yield of its own, tends to fall out of favour with investors when interest rates rise.

The dollar index was near its two-month peak, weighing on gold prices. A stronger dollar makes the yellow metal more expensive for holders of other currencies.

"As long as we remain above $1,900, I don't see too much risk of further decline," De Casa added.

"I see a small margin for a decline, which, in the worst-case scenario, could be $1,800, but no more because the demand is very solid. But we can have a temporary correction."

Spot silver fell 0.6% to $23.18 per ounce, platinum was up 0.2% at $1,024.61, while palladium fell 0.3% to $1,419.68.

(Reporting by Seher Dareen in Bengaluru, additional reporting by Kavya Guduru; Editing by Sohini Goswami)