Oct 12 (Reuters) - Gold held firm near two-week highs on Thursday, as the U.S. dollar and Treasury yields stumbled on the Federal Reserve's cautious approach on interest rates and ahead of a key inflation report that could offer more clarity on future policy path.
FUNDAMENTALS
* Spot gold was up 0.1% at $1,874.49 per ounce by 0110 GMT, hovering near Wednesday's highest level since Sept. 29. U.S. gold futures were steady at $1,887.50.
* The dollar index and U.S. Treasury yields were rooted near two-week lows, making non-interest-paying gold more attractive.
* U.S. producer prices increased more than expected in September, but underlying inflation pressures at the factory gate continued to abate. The mixed report came before the September consumer price index data on Thursday, which is expected to show inflation moderated last month.
* A growing sense of uncertainty around the path of the U.S. economy, with volatile data and tightening financial markets posing risks to growth, pushed Fed policymakers into a newly cautious stance last month, a position reaffirmed by top U.S. central bank officials in a series of statements this week.
* Fed Governor Christopher Waller on Wednesday said higher market interest rates may help the Fed slow inflation, and let the central bank "watch and see" if its own policy rate needs to rise again or not.
* Bond market strategists are holding on to their forecasts for U.S. Treasury yields to decline by year-end, as well as a view that 10-year yields have peaked, despite being proven wrong within days of each of the previous two monthly Reuters polls.
* SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 0.10% on Wednesday.
* Elsewhere, spot silver eased 0.2% to $22.02 per ounce, platinum advanced 0.5% to $889.05 and palladium gained 0.3% to $1,170.36. (Reporting by Swati Verma in Bengaluru; Editing by Subhranshu Sahu)
