* Spot gold could fall to $1,488/oz -technicals
* SPDR Gold holdings rose 1.8% on Wednesday
* Stocks climb as China revives trade deal optimism (Updates prices)
By Brijesh Patel
Sept 26 (Reuters) - Gold edged higher on Thursday as investors bought into the market after a sharp fall in the previous session, though bullion's gains were limited by a firm U.S. dollar.
Spot gold rose 0.4% to $1,509.18 an ounce by 1315 GMT. U.S. gold futures were up 0.2% at $1,514.60.
Gold prices slipped as much as 2% on Wednesday as U.S. political uncertainties stemming from an impeachment inquiry into President Donald Trump drove investors to the safety of the dollar.
The dollar index climbed to a three-week peak and was hovering within striking distance of a two-year high of 99.370 hit this month.
"People still see the dollar as the prime destination for safety, so essentially the dollar has taken some of gold's safe-haven flows," said FXTM analyst Lukman Otunuga who added that the $1,500 level for gold could act as a support.
European shares gained ground after encouraging comments from China about international trade.
The Chinese commerce ministry said Beijing is in close communication with Washington and preparing to make progress at trade talks in October.
Bullion has risen more than 17% this year, propelled by trade tensions and an increasingly dovish monetary policy shift by central banks because of fears over slowing growth.
"Geopolitical developments are still supportive to the precious (complex), however it looks as though fast money over-extended the recent rally," MKS PAMP said in a note.
"The move lower has seen participants take advantage of the lower entry point as the metal still holds the uptrend, while ETFs (exchange-traded funds) continue to see inflows."
Holdings of SPDR Gold Trust, the world's largest gold-backed ETF, jumped to 924.94 tonnes on Wednesday, up 1.8% from the previous day.
Investors were also watching for developments in the Democrats' decision to begin an impeachment inquiry into Trump after a summary of a telephone call showed the U.S. president had asked Ukraine's president to investigate a political rival.
On the technical side, spot gold is likely to fall to $1,488 an ounce after breaking support at $1,514, said Reuters technical analyst Wang Tao.
Elsewhere, silver rose 0.2% to $17.93 an ounce, platinum was up nearly 1% at $934.30 and palladium climbed 1.2% to $1,661.39.
Reporting by Brijesh Patel in Bengaluru Editing by David Evans and Elaine Hardcastle