* S&P rises 1 percent on strong U.S. housing data
* Dollar rises versus basket of currencies
* Platinum, palladium recover after sharp losses (Updates market activities)
By Frank Tang and Clara Denina
NEW YORK/LONDON, Oct 17 (Reuters) - Gold edged lower on Friday as U.S. equities rebounded, but posted a second straight weekly gain as concerns over the global economy have raised speculation that the U.S. Federal Reserve could keep interest rates low for longer.
Palladium rallied 2 percent, partly recovering from Thursday's losses, as broad-based gains in global markets lifted demand hopes for the metal mostly used in auto catalytic converters.
The dollar index rose, and the S&P 500 index gained about 1 percent after data showed U.S. housing starts and permits rose in September, a signal the market's modest recovery is supporting what appears to be growing strength in the broader economy.
U.S. equities, however, are on track for their fourth straight weekly decline, their longest streak in more than three years, on concerns about the economy and the spread of the Ebola virus.
"Gold has had a good week because just about everything else has had a bad week," Macquarie analyst Matthew Turner said. "The rally has paused today, however, as the wider markets are wondering whether things really are quite as bad as they thought they were yesterday."
Spot gold inched down 35 cents to $1,238.70 an ounce by 2:37 p.m. EDT (1837 GMT).
The metal is up about 1 percent for the week after reaching a one-month high of $1,249.30 on Wednesday.
U.S. COMEX gold futures settled down $2.20 an ounce at $1,239 in lighter-than-usual turnover, preliminary Reuters data shows.
The U.S. dollar rose against a basket of major currencies on Friday after strong data on U.S. consumer sentiment calmed nerves following a week of severe market volatility.
Also underpinning gold were Thursday's comments by U.S. central banker James Bullard that the Fed should keep buying bonds for longer than planned in the face of volatile markets and falling inflation expectations.
Gold has benefited from the low interest rates and central banks' liquidity that have prevailed in the years after the 2008 financial crisis.
Despite Friday's drop, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.2 percent to 760.94 tonnes, latest data shows.
In spot gold market news, five companies have been shortlisted to replace the century-old London gold benchmark with a new electronic system, which is expected to be in place within the next few months.
Among other precious metals, palladium rose 2.1 percent to $750.10 an ounce. It fell as much as 5 percent to $725.10 in the previous session.
Platinum was up 1.6 percent at $1,256.74 an ounce. Spot silver dropped 0.5 percent to $17.24 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by Susan Fenton, David Evans, Lisa Von Ahn and Chizu Nomiyama)