Gold rises to 1-week high as dollar holds steady

By Apeksha Nair

(Reuters) - Gold prices hit their highest in a week on Thursday, as the dollar was on the defensive after tumbling in the previous session following the U.S. Federal Reserve's decision on interest rates.

The Fed raised benchmark rates for the third time this year as widely expected, but maintained its outlook of three rate increases in 2018 on low inflation concerns.

The dollar nursed losses on Thursday after falling on sluggish U.S. November inflation data and as the Fed kept its outlook on interest rates unchanged.

"The dollar is taking a softer turn here in Asia. We're seeing Shanghai come in and buying (gold)," a Hong Kong-based trader said.

Spot gold was up 0.1 percent at $1,256.40 an ounce at 0728 GMT, after earlier touching its highest since Dec. 7 at $1,259.11.

U.S. gold futures were up 0.9 percent at $1,259.20.

Meanwhile, the European Central Bank is expected to stand pat on monetary policy when it announces its decision on interest rates at a meeting later in the day.

"People factor too much hawkishness into these meetings and it disappoints a bit and that's kind of what happened ... the nervousness in the market helped gold," the trader said.

"It's probably $1,245-$1,265 area for the moment, but I would expect us (gold) to be bought."

Spot gold may test resistance at $1,262 per ounce, a break above which could lead to a gain to the next resistance level at $1,276, said Reuters technicals analyst Wang Tao.

In other precious metals, silver was down 0.1 percent at $16.04 an ounce, after hitting a five-month low of $15.59 in the previous session.

Platinum was unchanged at $884.65 an ounce. On Tuesday, it touched its lowest since February, 2016.

Palladium was steady at $1,016.80 an ounce.

(Reporting by Apeksha Nair in Bengaluru; Editing by Biju Dwarakanath and Joseph Radford)