* Lower U.S. initial jobless claims boost dollar, pressure gold
* Dollar index at four-year high
* China buying picks up with lower prices
* Coming up: U.S. Conference Board index of leading indicators (Adds comment, byline, updates market activities; changes dateline, adds NEW YORK)
By Frank Tang and Clara Denina
NEW YORK/LONDON, Sept 18 (Reuters) - Gold rebounded on Thursday, as investors bought back their bearish bets after speculation over an earlier-than-expected U.S. interest rate hike by the Federal Reserve sent bullion prices to a 8-1/2-month low.
Bullion prices were pressured earlier in the day after data showed U.S. jobless claims fell more than expected, suggesting a firming labor market, a trend seen as supportive of economic growth.
Follow-through selling also weighed on gold a day after the U.S. central bank renewed its pledge to keep interest rates near zero for a “considerable time,” but indicated it may raise borrowing costs faster than expected once it starts moving.
Analysts said that gold prices look vulnerable to a further fall as the U.S. dollar index climbed to its strongest level in more than four years and as U.S. equities ended at fresh record highs on Thursday.
“Today is a short-covering rally, but I think this could be a ‘dead cat bounce.’ If this follow-through doesn’t hold, we can retest the $1,200 support again,” said Eli Tesfaye, senior market strategist at Chicago-based RJO Futures.
Spot gold fell to its lowest since Jan. 2 at $1,216.01 an ounce early on Thursday and was last up 0.2 percent at $1,224.81 by 4:16 p.m. EDT (2016 GMT). The metal had lost 1 percent in the previous session.
U.S. COMEX gold futures for December delivery settled 70 cents lower at $1,226.90 an ounce, with trading volume around 25 percent above the 30-day average, preliminary Reuters data showed.
The dollar rose to its highest since July 2010 against a basket of currencies after the Fed raised its projections for rates over the next two years and announced a further $10 billion reduction in its monthly bond purchases, leaving the program on course to end next month.
Before Thursday, gold had dropped in four out of six sessions on worries of an early U.S. rate increase. The precious metal has benefited from low borrowing costs in the years after the 2007-09 financial crisis, as these encouraged investors to put money into the non-interest-bearing metal.
But as the U.S. economy normalizes and interest rates are projected to rise, gold investment demand is unlikely to return in the West, Thomson Reuters GFMS said in its 2014 Interim Gold Report.
In the physical market, premiums in top buyer China picked up on Thursday, climbing to $5-$6 an ounce, up from about $4 in the previous session.
Among other precious metals, silver was up 0.2 percent at $18.51 an ounce, having touched its lowest since June 2013 at $18.27. Platinum edged down 0.1 percent at $1,341.75 an ounce, while palladium fell 0.3 percent to $826.50.
1616 EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL US Gold DEC 1226.90 -9.00 -0.7 1216.30 1228.70 141,061 US Silver DEC 18.517 -0.217 -1.2 18.270 18.620 42,515 US Plat OCT 1349.50 -12.70 -0.9 1340.00 1352.50 13,646 US Pall DEC 831.65 -7.40 -0.9 820.20 834.10 4,752 Gold 1224.81 1.82 0.1 1216.60 1227.80 Silver 18.510 0.040 0.2 18.320 18.610 Platinum 1341.75 -1.65 -0.1 1342.50 1350.50 Palladium 826.50 -2.70 -0.3 821.50 831.25 TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 146,536 119,389 155,187 15.28 -0.47 US Silver 44,466 48,028 52,668 18.16 0.03 US Platinum 19,415 11,645 11,947 14 -0.24 US Palladium 4,772 8,628 6,181 21.99 0.10 (Additional reporting by A. Ananthalakshmi in Singapore; editing by Michael Urquhart, Dale Hudson and G Crosse)