Gold set to snap three-week losing streak as Fed holds rates steady

SINGAPORE (Reuters) - Gold firmed near a two-week high on Friday and was on track to snap a three-week losing streak after the Federal Reserve decided to hold U.S. interest rates steady due to worries over the global economy.

FUNDAMENTALS

Spot gold was flat at $1,130.70 an ounce at 0036 GMT, not far from a two-week high of $1,133.20 reached in the previous session. The metal is headed for a 2-percent weekly gain, following three weeks of losses.

U.S. gold gained 1 percent to $1,130.40, also near a two-week high

Bullion got a boost on Thursday after the Fed kept interest rates unchanged following a two-day policy meet, in a bow to worries about the global economy, financial market volatility and sluggish inflation at home.

But the U.S. central bank maintained its bias towards a rate hike sometime this year, while lowering its long-term outlook for the economy.

Gold had been weighed down all year on fears the Fed would soon hike interest rates from record-lows for the first time in nearly a decade. Higher rates could dent demand for non-interest paying bullion, while boosting the dollar.

Following the Fed's decision on Thursday, the dollar slumped to a three-week low against a basket of major currencies, supporting gold prices. [USD/]

Bullion's relief rally, however, might not last long as the central bank's move to refrain from raising rates this week only adds to the uncertainty over the timing of an eventual rate hike.

The global market volatility that upended investors over the last six weeks may last deep into autumn now that the Fed has decided to keep interest rates unchanged, several equity and fixed income portfolio managers said.

A majority of Wall Street's top banks now expect the Fed to begin hiking rates in December, according to a Reuters poll conducted on Thursday.

Physical demand from Asia wasn't offering much support to gold prices.

Gold discounts in India, the world's second-biggest consumer, widened this week as dealers struggled to offload stocks amid sluggish demand.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)