By Anushree Mukherjee

(Reuters) - Gold prices fell over 1% on Tuesday and were on track for their biggest drop on a percentage basis in 1-1/2 months as recent U.S. employment data lowered expectations for a bigger rate cut, while markets awaited minutes of the U.S. Federal Reserve's latest policy meeting for fresh signals.

Spot gold fell 1.1% to $2,614.49 per ounce by 1:59 p.m. ET (1759 GMT), falling for the fifth-straight session and moving further from the Sept. 26 record peak of $2,685.42.

U.S. gold futures settled 1.1% lower at $2,635.40.

"Last couple of days saw retracement or a pullback due to the change in outlook in regards to interest rates," said David Meger, director of metals trading at High Ridge Futures, adding that bond yields have rallied and the idea of further extensive rate cuts has been muted. [USD/] [US/]

According to the CME FedWatch tool, markets priced out a 50-basis-point reduction at the Fed's November meeting after last week's strong jobs report. They now see an 87% chance for a 25-bps cut.

Markets are focused on the minutes of the Fed's latest policy meeting, due on Wednesday, followed by U.S. Consumer Price Index data on Thursday and Producer Price Index data on Friday.

"U.S. inflation data to be released on Thursday is likely to show further decline in price pressure, but is unlikely to trigger renewed speculation of stronger Fed rate cuts. Therefore, higher gold prices are likely to be primarily driven by geopolitical risks," Commerzbank said in a note.

Gold is reputed for its stability as a favoured hedge against geopolitical and economic risks.

Global physically backed gold exchange-traded funds registered a fifth consecutive month of inflows in September as North America-listed funds added to their holdings, the World Gold Council said on Tuesday.[GOL/ETF]

Spot silver lost 4.3% to $30.36 per ounce, the lowest level in nearly three weeks. Platinum was down 1.9% at $953.04 and palladium fell 1.1% to $1,013.25.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Krishna Chandra Eluri, Rod Nickel and Shailesh Kuber)