* Dollar index touches four-month high

* Palladium down for a third straight day

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

(Updates prices)

By Zandi Shabalala

LONDON, April 25 (Reuters) - Gold slumped to a five-week lowon Wednesday as the dollar and U.S. Treasury yields jumped onrobust U.S. data and signs of an easing in the U.S.-China tradeconflict.

The benchmark U.S 10-year Treasury yields rose to 3 percentfor the first time in more than four years, reflecting thedurability of the U.S. economic expansion after U.S. consumerconfidence rebounded in April and new home sales increased morethan expected in March. urn:newsml:reuters.com:*:nL1N1S01JX

But higher yields on bonds make gold a less attractiveinvestment because it pays no interest. US/

Meanwhile, there was a decline in political risk after theUnited States said it would likely reach a trade agreement withChina and that officials from both sides would sit down fornegotiations in a few days. urn:newsml:reuters.com:*:nL1N1S115Z

"Recently there has been some optimism that the U.S-Chinatrade war isnt going to be as big of an issue," said Natixisprecious metals analyst Bernard Dahdah.

"There is a bit more confidence in the U.S. and thatnegatively affects gold, naturally, in terms of geopolitics."

Spot gold XAU= was down 0.7 percent at $1,320.56 perounce, as of 1422 GMT. It touched a session low of $1,318.51,the worst since March 21.

U.S. gold futures GCcv1 dropped 0.8 percent to $1,321.50per ounce.

The dollar index .DXY , which measures the greenbackagainst a basket of currencies, rose to a four-month high, up 0.4 percent. USD/

World stocks were down for the fifth straight session onWednesday. MKTS/GLOB

In other geopolitical news, North Korean leader Kim Jong Unis due to hold a summit with South Korean President Moon Jae-Inon Friday, and is expected to meet Trump in late May or earlyJune. urn:newsml:reuters.com:*:nL3N1S01DH

"As traders put geopolitical and trade risk in the rear-viewmirror for the time being, how the dollar flourishes and wiltswill be the primary driver of near-term gold sentiment," saidStephen Innes, APAC trading head, OANDA.

Gold is often seen as an alternative investment during timesof political and financial uncertainty.

But investor appetite has been climbing as holdings in goldexchange-traded funds (ETFs) rose to the highest since 2013. 0#ETFHLD=XAU

"As the Goldilocks market environment draws to a close,investor interest in gold has picked up," said TS Lombard in anote, referring to an economy that is not so hot that it causesinflation, and not so cold that it causes a recession.

In other precious metals, spot silver XAG= dropped 1percent to $16.54 an ounce, and platinum XPT= eased 1.2percent to $915 an ounce, having touched its lowest in over twoweeks.

Palladium XPD= fell for a third straight session, down 0.5percent at $969.40 an ounce.

(Additional reporting by Swati Verma in BengaluruEditing by Alexandra Hudson and Adrian Croft) ((zandi.shabalala@tr.com; +44 207 542 5937; Reuters Messaging:zandi.shabalala.thomsonreuters.com@reuters.net))