May 19 (Reuters) - Gold prices on Friday were on course for their biggest weekly drop in 3-1/2 months as recent strong U.S. economic data and hopes for a resolution in the debt debate took some shine off bullion.
FUNDAMENTALS
* Spot gold held steady at $1,959.15 per ounce by 0026 GMT, while U.S. gold futures edged 0.1% higher to $1,961.70.
* Bullion was set for a 2.6% weekly drop - its biggest fall since February.
* The number of Americans filing new claims for unemployment benefits fell more than expected last week, suggesting the labor market remains tight.
* U.S. President Joe Biden and House of Representatives Speaker Kevin McCarthy, the top Republican in Washington, hope to finalize a deal on the debt ceiling after Biden returns from the Group of Seven meeting in Japan on Sunday.
* Two Fed policymakers said on Thursday, U.S. inflation does not look like it is cooling fast enough to allow the Federal to hit pause on the interest-rate hike campaign.
* Meanwhile U.S. Treasury Secretary Janet Yellen reaffirmed the strength and soundness of the country's banking system in a meeting with bank CEOs on Thursday, a Treasury Department statement said.
* The dollar index edged 0.1% down in early Asian trade, but hovered close to a near two-month high. A stronger dollar makes gold less affordable for overseas investors.
* Elsewhere, Japan's core consumer prices rose 3.4% in April from a year earlier as price hikes broadened, data showed on Friday, casting doubt on the central bank's view inflation will slow back below its 2% target later this year.
* Spot silver rose 0.1% to $23.53 per ounce, platinum added 0.2% to $1,050.94, palladium climbed 1% to $1,467.38.
DATA/EVENTS (GMT) No major data/events expected on Friday, May 19 (Reporting by Arundhati Sarkar in Bengaluru; Editing by Sherry Jacob-Phillips)
