Gold holds steady as investors await Fed meet outcome

By Sethuraman N R

BENGALURU (Reuters) - Gold was little changed on Tuesday, after falling in the past two sessions, as the dollar slipped and equities eased ahead of the U.S. Federal Reserve meeting later in the day.

Asian markets remained cautious with investors waiting for cues from the two-day Fed meet, sending the safe-haven yen higher.

The dollar edged down 0.3 percent versus a basket of six major currencies, below the previous session's high of 97.569, its loftiest since March.

Spot gold was up 0.1 percent $1,316.80 an ounce at 0655 GMT, hovering above the previous session's close of $1,315.15.

U.S. gold dipped 0.2 percent to $1,317 an ounce.

"At this moment people ... are more conservative on the likelihood of an interest rate hike as well as further stimulus. That would induce further correction in gold prices," said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

The U.S. central bank is widely expected to stand pat on policy but investors were bracing for any possible signals from the Fed about a tightening later this year.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which the precious metal is priced.

"We are quite nervous about the precious group here, as barring a sharper sell-off in U.S. equities, we suspect that the pressure on gold will only intensify between now and Wednesday," said INTL FCStone analyst Edward Meir in a note.

"We suspect the (Fed) statement alone will not be enough to change perceptions about a stronger dollar or dent expectations about rising rates."

U.S. federal funds futures fell to four-week lows on Monday, signalling traders raised their bets the Fed would raise short-term interest rates by the end of 2016 if the economy shows further improvement.

Spot gold may retest a support at $1,313, a break below which could cause a loss to the next support at $1,298, Reuters technical analyst Wang Tao said.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.46 percent to 958.69 tonnes on Monday.

Among other precious metals, palladium slipped 0.1 percent to $683.80 after touching a nine-month high of $688 earlier in the day.

Silver inched up 0.3 percent to $19.59, while platinum rose 0.2 percent to $1,080.15 an ounce.

(Reporting By Vijaykumar Vedala and Nallur Sethuraman in Bengaluru; Editing by Richard Pullin and Biju Dwarakanath)