* Shares advance as risk appetite revives

* Palladium drops from 1-1/2 month highs

* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl

(Updates prices, adds LONDON dateline)

By Jan Harvey

LONDON, April 17 (Reuters) - Gold fell on Tuesday as sharperappetite for risk benefited cyclical assets at bullion'sexpense, though losses were capped by the dollar's slip tothree-week low against a basket of currencies.

Gold rallied to a 2-1/2 month high last week as heightenedtensions over Syria and U.S. sanctions on Russia sparked a dropin equities and ratcheted up interest in nominally defensiveassets. Those gains, however, have proved hard to maintain.

Spot gold XAU= was down 0.3 percent at $1,342.77 an ounceat 1120 GMT, while U.S. gold futures GCcv1 were down 0.5percent at $1,344.40.

"All this noise we've been witnessing as of late, whether itis trade disputes or Syria, has not really moved gold on asustainable basis," said Julius Baer analyst Carsten Menke.

"The story would be different if these disputes prevailedand we got a significant slowdown in leading indicators. But itdoesn't seem to me that anybody is really afraid of a materialdeterioration in the economic backdrop."

A gradual return of risk appetite lifted world shares onTuesday, with European stocks climbing 0.4 percent to erase theprevious session's losses. .EU

The U.S. yield curve reached its flattest in more than adecade on Monday after the White House said that U.S. PresidentTrump would nominate Richard Clarida as Federal Reserve ViceChairman, another hawkish voice at the central bank. urn:newsml:reuters.com:*:nL1N1RT1FZ US/

A flatter yield curve typically indicates that the Fed isplanning to lift interest rates in the near term and is oftenunderstood to signal concern over the macroeconomic outlook.Higher rates tend to weigh on non-yielding bullion.

The euro hit a three-week high on Tuesday as solid Chineseeconomic data and receding fears of more U.S. strikes in Syriarevived risk sentiment, weakening the dollar. FRX/

On Monday Trump also accused Russia and China of devaluingtheir currencies while the United States raises interest rates. urn:newsml:reuters.com:*:nL1N1RT0K5

Among other precious metals, silver XAG= was up 0.1percent at $16.62 an ounce, while platinum XPT= was 0.1percent higher at $924.90.

Palladium XPD= was down 1.6 percent at $985.97 an ounceafter hitting its strongest since March 1 the day before at$1,012.10 an ounce.

It rallied nearly 10 percent last week, the biggest weeklygain since January 2017, on fears that U.S. sanctions on Russiacould hurt supply of the autocatalyst metal.

"Palladium has gained by $100, or 11 percent, since the U.S.sanctions were announced on April 6," Commerzbank said in anote.

(Reporting by Jan Harvey; additional reporting by Swati Vermain Bengaluru; editing by David Goodman and Jason Neely) ((Swati.Verma@thomsonreuters.com; within U.S. +1 651 848 5832,outside U.S. +91 80 6749 6356/1298 ; Reuters Messaging:swati.verma.thomsonreuters.com@reuters.net))