Gold sits tight; all eyes on Fed for rate outlook

SINGAPORE (Reuters) - Gold was little changed at over $1,230 an ounce on Wednesday as investors were biding their time ahead of a Federal Reserve statement later in the day, keenly watched for clues on when the U.S. central bank will increase interest rates.

The metal is only about $10 away from an eight-month low hit earlier this week on fears the Fed would raise rates sooner than expected.

FUNDAMENTALS

* Spot gold was flat at $1,234.90 an ounce by 0035 GMT, after closing up 0.2 percent in the previous session.

* After hitting an eight-month low of $1,225.30 on Monday, the metal has gained slightly as investors adjust their positions ahead of the Fed statement.

* The Fed opened its two-day meeting on Tuesday, with an announcement scheduled for Wednesday. Some analysts believe it could signal it may begin raising rates sooner than mid-2015, the current consensus target.

* Any increase in interest rates would dim the appeal of non-interest-bearing assets such as gold, also seen as a hedge against inflation brought by central bank actions.

* Bearish investor sentiment was reflected in the flows of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. The fund's holdings fell 4.18 tonnes to 784.22 tonnes on Tuesday.

* Physical demand in Asia has failed to pick up in any significant way as consumers expect a further drop in prices, adding further pressure on gold.

MARKET NEWS

* The U.S. dollar nursed modest losses early on Wednesday, having suffered an unexpected setback as jitters mounted hours before the Fed offers its latest guidance on interest rates.

DATA/EVENTS (GMT)

0900 Euro zone Inflation, Final Aug

1230 U.S. Inflation Aug

1400 U.S. NAHB housing market index Sep

1800 Federal Reserve issues statement after policy meeting

1830 Fed chairperson Janet Yellen holds news conference

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