* PGMs rise after police kill 34 in Safrica mine clash
* Platinum heads for best week since February
* Gold steadies as euro retreats vs dollar (Releads, updates prices, adds comment)
By Jan Harvey
LONDON, Aug 17 (Reuters) - Platinum group metals rallied on Friday on supply fears after mass killings in South Africa shut production at number three platinum miner Lonmin, while gold prices retreated from early highs as the dollar recovered lost ground.
South African police killed 34 striking miners armed with machetes and sticks at Lonmin's Marikana platinum mine on Thursday, evoking comparisons to apartheid-era brutality. .
Police chief Riah Phiyega said 78 were also injured after officers moved against 3,000 striking drill operators massed on a rocky outcrop at the mine, 100 km (60 miles) northwest of Johannesburg.
Prior to Thursday, 10 people, including two policemen, had died in nearly a week of fighting between the Association of Mineworkers and Construction Union (AMCU) and the National Union of Mineworkers (NUM), a close ally of the ruling ANC.
"There are two things going on - the pay dispute, but also this militancy between unions," Citigroup analyst David Wilson said.
"It is having an impact on sentiment towards platinum. Whether it is significantly tightening the market - at the moment, probably not. But potentially, this could have quite a long-term impact."
Platinum prices are up 4.2 percent so far this week, on track for their biggest weekly rise since late February, while palladium rose 2.7 percent on its coat-tails, its best weekly performance since early June.
Spot platinum was up 1.2 percent at $1,451.75 an ounce at 1428 GMT, while spot palladium was up 2.3 percent at $592.97 an ounce. Platinum earlier hit a six-week high at $1,458.99.
As South Africa is the source of around 75-80 percent of the world's platinum, any supply disruption there is closely watched for its impact on the market balance. Lonmin typically produces around 2,000 ounces of platinum a day or 60,000 ounces a month.
However, weakness in the demand for the autocatalyst metal, particularly in Europe, means it is still forecast to be in a hefty surplus this year.
"While lost platinum production so far does little to put a dent to our estimated surplus of 210,000 ounces, the risk is that the situation starts to infect other major operations in South Africa," UBS said in a note on Friday.
"If the unrest becomes materially worse from here, there is also the potential of positive government intervention, easing fears which would in turn dampen platinum's... strength."
"But there are doubts as to whether the government will be able to respond quickly enough, particularly given the politics surrounding the ANC leadership elections in December," it said.
Spot gold was little changed at $1,613.56 an ounce, while U.S. gold futures for December delivery were down $3.70 an ounce at $1,615.50. Prices have struggled for traction this week, awaiting direction from policymakers.
The dollar recovered against the euro, having earlier slipped after Merkel said European Central Bank chief Mario Draghi's pledge to do whatever it takes to preserve the single currency was "completely in line" with the approach taken by European leaders.
Gold bulls are hoping that the ECB will unveil extraordinary measures, such as bond-buying, to shore up the euro zone. This, combined with expectations that the Federal Reserve will also boost liquidity to fuel growth, has lifted gold this month.
Mitsubishi analyst Matthew Turner said he expected gold to hold in its current range in the short term.
"There are quite a lot of events coming up in the euro area, such as the German constitutional court (ruling on the euro zone rescue fund), Spanish bond auctions, the IMF going to Greece, but they're all in September," he said. "That will be the big month."
Among other precious metals, spot silver was flat at $28.19 an ounce. (Reporting by Jan Harvey; Editing by Alison Birrane and David Cowell)