Gold eases as U.S. Fed meets, global stock indexes rise

By Marcy Nicholson and Zandi Shabalala

NEW YORK/LONDON (Reuters) - Gold edged lower on Tuesday, losing its lustre as the Federal Reserve began its two-day meeting during which it is expected to deliver the second U.S. interest rate hike in a decade and provide some insight into its outlook for 2017.

Markets have priced in a near 100 percent chance of a quarter-point increase. Higher interest rates generally dent demand for non-yielding bullion while strengthening the dollar, in which it is priced.

Spot gold slipped by 0.6 percent to $1,155.65 an ounce by 2:47 p.m. EST (1947 GMT), near Monday's 10-month low of $1,151.34 on Monday.

U.S. gold futures settled 0.6 percent lower at $1,159 per ounce.

"The language accompanying this week's FOMC decision is likely to reiterate a 'balanced' risk assessment toward the economic outlook, suggesting that the next rate hike could be a decision that's due sometime off in the future rather than something that's imminent," said Joni Teves, strategist for UBS Global Research in a research note.

"The break of the $1,170 technical area shifts the focus to psychological support at $1,150, which currently looks vulnerable especially as ETF liquidations persist."

The Fed is scheduled to make a statement on Wednesday at 2 p.m. EST.

Investors will be looking for clues on how the U.S. central bank will deal with inflation that could emanate from the expansionary policies of President-elect Donald Trump and economic growth expectations.

"The Fed is as confused with Trump as is the rest of the world, so it will be interesting to see what kind of guidance they give going into 2017," said Ole Hansen, Saxo Bank's head of commodity strategy.

Global stock indexes rose while the U.S. dollar steadied and the benchmark U.S. 10-year Treasury yield hovered near a two-year high.

Reflecting lacklustre sentiment, holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, fell again on Monday.

Outflows continued because of the expected Fed rate increase, said ETF Securities' commodities strategist Martin Arnold, adding that a greater "risk-on" mindset accompanied by a stronger dollar weighed on prices.

"If we are correct, we should see a rise in rates and a stronger dollar. The two could spark a fresh selloff in gold to the $1,140-level we are targeting for sometime in December," INTL FCStone analyst Edward Meir said in a note.

Silver was down 1.3 percent at $16.85 an ounce, while platinum turned up 0.3 percent at $933.80.

Palladium was up 0.9 percent at $728.10. Holdings of palladium-backed exchange-traded funds have dropped back to levels not seen since early 2014.

(Additional reporting by Nallur Sethuraman and Swati Verma in Bengaluru; editing by David Goodman, G Crosse)