* Gold up 2.3 percent this week * S&P downgrades Spain rating ahead of G20 meeting * Coming up: U.S. retail sales for Sept at 1230 GMT By Harpreet Bhal LONDON, Oct 14 (Reuters) - Gold rose on Friday, on track to post its biggest weekly gain in more than a month, with caution prevailing ahead of a G20 meeting whose agenda will be dominated by the euro zone debt crisis and steps to tackle contagion. Spot gold rose 0.5 percent to $1,674.79 an ounce at 0921 GMT, from $1,666.20 late in New York on Thursday. Reflecting growing concern about the region's debt crisis, ratings agency Standard and Poor's downgraded the long-term credit rating of Spain by one notch, just as policymakers get ready to pressure Europe to act swiftly to tackle its financial woes at a weekend meeting. Although investors are not expecting any concrete resolutions to the debt crisis, they hope it will provide an opportunity for officials to agree on the outlines of a plan in time for a European Union summit on Oct. 23. "The big picture remains positive for gold. The supply-demand fundamentals are very much in place and there has been an augmentation in that rally by economic fears," said Ross Norman of Sharps Pixley. "Presently gold sits towards the top end of its trading range at $1,678 and awaits fresh impetus - physical demand is robust and there is good support below this market." Also helping boost gold was a fall in the dollar, which dipped against a basket of currencies. A weak dollar makes commodities priced in the U.S. unit cheaper for holders of other currencies. Gold prices are up 2.3 percent so far this week, on track to post its strongest weekly gain since early September. U.S. gold GCcv1 also gained 0.5 percent to $1,676.90 an ounce, while spot silver rose 0.9 percent to $32.04 an ounce. FORECASTS LOWERED UBS reduced its 2011 average gold price to $1,615 from $1,665 to allow for mark-to-market adjustments and the impact of a stronger dollar, but kept its 2012 forecast at $2,075. "Our core view is that ongoing global macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, and low business, consumer and investor confidence will lead to gold being increasingly used as the line of defence against negative market outcomes," the bank said in a research note. The most serious risk to gold is a rapid deterioration in bank funding and escalating liquidity concerns, it added. The bank said its physical gold sales to India so far this year rose 10 percent on the year, suggesting resilient buying interest in the world's biggest gold consumer in the face of higher prices. Besides physical gold, Indians are likely to invest more in gold-backed exchange-traded funds, as a sagging stock market disappoints and high inflation eats into savings, the World Gold Council said. China, the world's second-largest gold consumer and biggest gold producer, said its inflation in September eased from the previous month, but the stubborn food price pressures will deter the central bank from loosening its policy any time soon. The inflation data, coupled with soft trade figures released on Thursday and recent concerns over China's cash-strapped small and medium enterprises, seem to support the belief that Beijing will put its tightening policy on hold for the moment. High inflation has driven many retail investor in China to bullion, which is seen as a good hedge against rising prices. Spot platinum gained 0.9 percent to $1,541.25 an ounce, posting its biggest weekly rise in about two months and snapping five weeks of consecutive losses. Spot palladium climbed 2.1 percent to $602.22 an ounce. It is up 2.4 percent so far this week, reversing five weeks of falls.

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