* Spot gold targets $1,734-1,738 zone - technicals
* Holdings of SPDR Gold up
* Gold speculators raise net long position
By David Brough and Andrew Heavens
LONDON, Nov 19 (Reuters) - Gold firmed as the dollar slipped on Monday after dropping by 1 percent last week, while violence in the Middle East and talks to resolve an imminent fiscal crunch in the United States lent support.
Spot gold rose 0.61 percent to $1,723.9 an ounce by 1219 GMT. U.S. gold gained half a percent to $1,723.90.
"The fact that we are holding above the $1,700 level is giving investors the kick to get back into gold," said Saxo Bank vice president Ole Hansen.
The dollar index eased from a two-month high hit on Friday, making commodities priced in the greenback more affordable for buyers holding other currencies.
Hansen said the rising conflict between Israel and the Gaza Strip, worries over the unresolved euro zone debt crisis, and the continuing talks to resolve the fiscal cliff, underpinned gold.
The gold market's attention is largely focused on the budget talks between U.S. President Barack Obama and Congressional leaders.
Gold's safe haven status would shine in the case of failed talks and political paralysis, while success in avoiding the fiscal disaster may dampen sentiment in gold, analysts said.
Share markets worldwide rebounded from last week's sharp selloff on Monday, with investors encouraged by signs of progress in talks to resolve the fiscal crunch in the United States.
U.S. lawmakers expressed confidence on Sunday that they could reach a deal to avert the $600 billion "fiscal cliff", which threatened to send the giant economy back into recession.
The discussions between the two parties are unlikely go smoothly, which would potentially benefit gold.
Hansen said that once the fiscal crunch is resolved, the underlying interest rate environment was likely to remain low for some time, potentially supporting gold prices.
"If the parties in the U.S. reach agreement, that would remove uncertainty and gold's safe haven status. But the low interest rate environment is not going to go away," he said.
Low interest rates increase inflationary fears, and can support gold which is often seen as a hedge against inflation.
MIDDLE EAST CONFLICT
Referring to the weekend violence in the Middle East, Peter Fertig, consultant with Quantitative Commodity Research, said, "The situation in the Middle East could be supportive for precious metals. The situation is supportive for the price of crude and precious metals often rise with higher crude prices."
Tom Kendall, head of precious metals research at Credit Suisse, said the Gaza Strip violence could have more impact on the gold market if energy prices react more.
"There is a small risk that the violence could spill over into other parts of the Middle East. But it is having a pretty limited effect on the gold price right now," Kendall said.
"We would need to see much greater reaction to energy markets than we've been seeing for that to spread into gold."
Israel bombed dozens of suspected militant sites in the Hamas-ruled Gaza Strip on Monday and Palestinians kept up their cross-border rocket fire as international pressure for a truce intensified.
Reuters market analyst Wang Tao expected spot gold to rise to a resistance zone of $1,734 to $1,738 an ounce during the day, driven by an upward wave c.
HOLDINGS OF SPDR GOLD UP
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD rose 0.22 percent on Friday from Thursday, while those of the largest silver-backed ETF, New York's iShares Silver Trust SLV fell 0.45 percent for the same period.
Speculators raised their net long bets in U.S. gold in the week ended Nov. 13 from the lowest level in about three months hit a week earlier, the U.S. Commodity Futures Trading Commission said.
Net long positions in U.S. silver edged up to 27,802 contracts from 27,350 contracts a week earlier, their lowest since late August.
Platinum rose 0.40 percent to $1,560.25, while sister metal palladium was last at $634.00, up 1.1 percent.
Spot silver rose 1.43 percent to $32.67 an ounce.