* U.S. economic growth slows, inflation remains sticky -data
* Markets expect 25 bps Fed rate hike next week
* Higher rates can worsen banking crisis -analyst
April 27 (Reuters) - Gold reversed course and dropped on Thursday, as the dollar gained after weaker U.S. economic readings failed to upend expectations of another interest rate hike by the Federal Reserve next week amid stubborn inflation.
Spot gold was down 0.1% at $1,988.08 per ounce by 2:16 p.m. EDT (1816 GMT), while U.S. gold futures settled up 0.2% at $1,999.
Data showed the U.S. gross domestic product grew slower-than-expected last quarter, but markets focused on the above-forecast inflation number.
That drove investors to the dollar, making gold more expensive for those holding other currencies.
Although gold is a customary safe haven during economic uncertainties, stubborn inflation could prolong the Fed's monetary tightening, dimming appeal for zero-yield bullion.
Markets saw an 87% chance of the U.S. Fed raising rates by 25 basis points on May 2-3. Investors now await the core Personal Consumption Expenditures (PCE) index data for March due on Friday.
"If we do get a hotter number on that PCE tomorrow, that's going to be bearish for gold from a perspective of global demand for the metals markets", given prospects of further rate hikes, said Jim Wyckoff, senior analyst at Kitco Metals.
Earlier in the day and in previous sessions, gold found support from concerns about the U.S. banking sector, with U.S. government officials so far unwilling to intervene in the First Republic Bank rescue process.
Also on the radar were deliberations surrounding the U.S. debt ceiling, lifting Treasury yields.
Although higher interest rates work against gold as it does not provide any yield, they can work in bullion's favour because they raise the chance of another banking crisis, said independent analyst Ross Norman.
Bullion had scaled more than a year's peak at $2,048.71 in mid-April as the banking crisis unfolded.
Silver rose 0.1% to $24.91 an ounce, platinum shed 0.9% to $1,079.52 and palladium was down 1.2% at $1,494.07. (Reporting by Deep Vakil and Ashitha Shivaprasad in Bengaluru; Editing by David Goodman, Sohini Goswami, Alexander Smith and Shilpi Majumdar)
