By Eric Onstad
LONDON (Reuters) - Gold crept higher on Thursday as the dollar extended losses but investors were wary ahead of a meeting later in the day of the European Central Bank and the prospect of a U.S. rate hike next week.
Spot gold was up 0.2 percent at $1,175.40 an ounce by 1046 GMT and U.S. gold futures were little changed at $1,177.20 an ounce.
Bullion has shed more than 12 percent from its post-U.S. election peak of $1,337.40 on Nov. 9.
"Gold is consolidating ahead of the ECB meeting," said Georgette Boele, ABN AMRO commodity strategist in Amsterdam.
"If the ECB has the ability to trigger euro-dollar weakness again, and it breaks under the key 104.58-105 level, then you'll get the next phase of a dollar rally, which will be painful for gold."
The euro rose 0.4 percent against the dollar to 1.0794 while the dollar index slipped to a three-week low.
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A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies.
The ECB is expected to extend its already generous asset buys on Thursday, aiming to boost stubbornly weak inflation.
Weighing on gold were strengthening expectations that the Federal Reserve may increase interest rates in its policy meeting next week, as rising U.S. rates raise the opportunity cost of holding non-yielding bullion.
Interest rates futures implied traders saw a 95 percent chance that the Fed would raise rates at its policy meeting next Tuesday and Wednesday, CME Group's FedWatch program showed.
"As we head into the FOMC, it is certain that the Fed will raise rates this time. I believe this is mostly priced into gold. We might still see some reaction and the recent low of $1,157 may be revisited again," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central.
Gold may get support, however, following the Fed decision as investors take profits and close books for the year, but this would only be temporary before a fresh bout of weakness for gold in the new year, Boele added.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, dropped 0.72 percent to 863.67 tonnes on Wednesday from Tuesday. Holdings have fallen more than 8 percent since November.
Silver was unchanged at $17.10 an ounce after rising over 2 percent in the previous session.
Platinum rose 1.2 percent to $946.75, while palladium fell 1.2 percent to $723.83 per ounce.
(Additional reporting by Nallur Sethuraman and Swati Verma in Bengaluru; editing by Susan Thomas)
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