Prices retreat in line with commods as China lifts rates * Dollar hits session highs versus currency basket * Debt woes support gold after Moody's cuts Portugal rating By Jan Harvey LONDON, July 6 (Reuters) - Gold prices slipped below $1,510 an ounce, surrendering some of the previous session's 1.3 percent gains, after China's decision to lift interest rates boosted the dollar and sparked selling of commodities. Spot gold was bid at $1,511.25 an ounce at 1146 GMT, against $1,515.70 late in New York on Tuesday. Earlier it rose as high as $1,518.44. U.S. gold futures GCv1 for August delivery were down 50 cents at $1,512.10 an ounce. China's central bank increased interest rates for the third time this year, by 25 basis points, making clear that taming inflation is a top priority even when as the economy slows gently. The move hurt prices of industrial commodities oil and base metals, as investors feared demand would be hit, and lifted the dollar to a session high versus a currency basket. Both factors weighed on gold, but the metal is expected to remain relatively well supported by concerns over euro zone debt, rising inflation in China, and an upcoming debate on raising the U.S. debt ceiling. "Gold has had a negative reaction today. We followed the broader commodity market," said VTB Capital analyst Andrey Kryuchenkov. "But losses will be limited." "As far as gold is concerned, interest rate hikes in any currency -- major currencies perhaps more than the yuan -- are not good because they increase the opportunity cost of holding gold," he added. "The view is that the European Central Bank will be hiking rates this week as well." The metal posted its biggest one-day rise since early May on Tuesday as risk aversion hit financial markets after weak euro zone data and a Moody's report saying the scale of problem loans at local governments in China may be bigger than previously thought. It extended gains after Moody's became the first ratings agency to cut Portugal's credit standing to junk, warning the country may need a second round of rescue funds before it can return to capital markets. The markets are now taking a breather as traders digest the latest price rise, analysts said. "The issues surrounding the euro zone are going to last for quite some time, so they are something that markets are going to have to be dealing with on an ongoing basis," said Macquarie analyst Hayden Atkins. Bonds issued by the euro zone's weaker countries came under intense pressure on Wednesday after the Moody's cut, which raised fears Portugal would also eventually be pushed into a debt restructuring. The euro and Australian dollar extended losses after China's rate hike, while stock markets slipped as investors cut exposure to riskier assets. ECB MEETING AWAITED Traders are closely watching the ECB's policy meeting on Thursday. The bank is set to lift euro zone interest rates to 1.5 percent and to show no sign of softening its stance that Greece must not default on its debts. Expectations that the ECB will hike rates more quickly than the Federal Reserve have helped lift the euro more than 7 percent against the dollar so far this year, supporting gold. From a technical perspective, the precious metal is facing tough resistance after its latest break higher. "We see resistance at $1,518 and $1,528 which represent the 50 percent and 61.8 percent of our June drop from $1,558 to $1,479," said ScotiaMocatta in a note. "We believe the market will maintain its bearish slant while the metal holds below $1,518 but will shift neutral on a close back above that level." On the supply side of the market, investors were awaiting fresh developments in a strike in Freeport-McMoran's Indonesia mine as well as the threat of a strike in South Africa's main gold mines. Among other precious metals, silver was bid at $35.20 an ounce against $35.45, spot platinum was bid at $1,729.99 an ounce versus $1,737.05, and spot palladium at $767.22 an ounce against $770.38. (Reporting by Jan Harvey)

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