LONDON- Gold steadied on Tuesday as the dollar trod water against a basket of currencies, with investors reticent to bid up the metal in the face of looming U.S. interest rate increases and escalating Sino-U.S. trade tensions.

Since its April peak gold has dropped more than 12 percent as a trade war between China and the U.S. has driven investors to seek safety in the dollar rather than in gold, a traditional safe haven.

Bearish bets on Comex gold have risen to record levels while investors have liquidated exchange-traded gold fund holdings.

"(There's) a generally strong dollar backdrop, which is keeping the precious metal under pressure. The market is very short gold futures," said ICBC Standard Bank analyst Marcus Garvey.

He added, however, that financial positions are becoming so short that it would not take much of a surprise to spark a short-covering rally.

"There's a good chance gold recovers back to $1,200 and possibly a bit higher," Garvey said.

Spot gold dipped 0.1 percent to $1194.55 an ounce at 1144 GMT while U.S. gold futures  were flat at $1199.70.

The dollar was little changed versus a currency basket, with the euro underpinned by easing concerns over Italian debt and the British pound near five-week highs on hopes of a Brexit deal with the European Union. 

Broadly underpinning the dollar were Friday's comments from U.S. President Donald Trump that he was ready to impose tariffs on virtually all Chinese imports to the United States. 

Furthermore, U.S. payrolls data last week cemented expectations that the Federal Reserve will raise U.S. interest rates in September. That would be the third increase this year, with expectations of another in December.

Higher interest rates increase bond yields, making non-yielding bullion less attractive. They also tend to boost the dollar, making dollar-priced gold costlier for non-U.S. investors.

Gold is finding strong resistance at $1,200, with investors selling into any rallies that threaten to push it above that level, ANZ analysts said in a research note.

Physical gold buying waned slightly in Asia this week as investors waited to see if prices would fall further, traders said.

In other precious metals, silver fell 0.3 percent to $14.1 an ounce, platinum XPT= firmed by 0.4 percent to $785.30 and palladium was down 0.7 percent at $969.10 after hitting its highest in nearly 12 weeks at $991.15.

(Additional reporting by Nallur Sethuraman in Bengaluru Editing by David Goodman and Kirsten Donovan) ((maytaal.angel@thomsonreuters.com(00442075429105)(Reuters Messaging: maytaal.angel.thomsonreuters.com@reuters.net) ))