* Markets watch U.S. debt ceiling
* Gold importers in India pause on fresh purchases
* China data shows economic recovery gains pace
By David Brough
LONDON, Nov 9 Gold hit a three-week high on Friday, buoyed by expectations U.S. monetary policy will remain loose after President Barack Obama's re-election and by a looming "fiscal cliff" that could slash U.S. public spending.
Since the U.S. elections on Tuesday, investors have become worried that Washington's politicians may struggle to find a compromise to cut the budget deficit before nearly $600 billion worth of spending cuts and tax increases kick in early in 2013.
Markets are also watching the debt ceiling, which needs to be raised to avoid a government shutdown.
Spot gold was at $1,738.01 an ounce by 1503 GMT, up 0.64 percent, after earlier touching a three-week peak of $1,738.66, while U.S. gold rose 0.66 percent to $1,737.40.
A stronger dollar offset further upside in gold by making the metal more costly in other currencies.
The euro dropped to a two-month low against the dollar on Friday and could extend losses as fears mounted that the euro zone's debt crisis and deteriorating economic conditions could drag down global economic growth.
Gold prices rose on Wednesday after Obama's re-election gave markets a boost by ending weeks of uncertainty and has since extended gains as concerns over the fiscal cliff have intensified.
"Wrangling (between Obama and Congress) between now and the end of the year might underpin gold," William Adams, head of research at Fastmarkets.com, said.
Nic Brown, head of commodities research at Natixis, said the Obama victory signalled a continuing environment of relaxed monetary policy, which was likely to support gold prices.
"An Obama victory enhances the likely longevity of ongoing quantitative easing," he said.
Standard Bank said in a market note, "In spite of dollar strength, the market appears to continue to take comfort from Obama's re-election and the implied support this gives to continued monetary accommodation from the Fed."
Money printing by central banks boosts gold's appeal as it keeps interest rates at a low level, reducing the opportunity cost of holding a metal that has no yield outside its actual value.
Spot gold XAU= is likely to gain more to $1,749 per ounce, driven by an upward wave c, according to Reuters market analyst Wang Tao.
China's economy strode further along the road of recovery from its slowest growth in three years, data for October showed on Friday, as infrastructure investment accelerated and output from factories ran at its fastest in five months.
China's gold demand is expected to grow 1 percent this year to a record of around 860 tonnes, Philip Klapwijk, the global head of metals at consultancy Thomson Reuters GFMS, said this week, with both jewellery and investment sales rising.
Adams said, "If we start to see more economic momentum in China, that would only be good for consumer buying of jewellery. People would have more money to invest in gold."
Gold importers in India, the world's biggest buyer of bullion, paused in making purchases ahead of festivals next week as a weaker rupee pushed up the gold price for Indian buyers.
The festive season in India will peak with Dhanteras and Diwali, while the wedding season continues until December.
Spot platinum XPT= traded up 1.57 percent to $1,564.99 an ounce. Spot palladium XPD= was up 0.08 percent at $612.47 an ounce.
Silver rose 1.27 percent to $32.73 an ounce.
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