By Jan Harvey
LONDON (Reuters) - Gold steadied on Tuesday, arresting the previous day's one percent slide ahead of this week's meeting of the U.S. Federal Reserve, which is expected to raise interest rates for the first time in nearly a decade.
Gold has fallen 10 percent this year, largely on the back of expectations of a U.S. rate increase. Rising rates increase the opportunity cost of holding bullion rather than interest-bearing assets.
The central bank's Federal Open Market Committee (FOMC) is expected to announce the increase at the end of its two-day policy meeting on Wednesday, but has hinted that it intends to raise rates only gradually from there.
Gold could bounce higher after the move as attention switches from the timing of the first rise to the pace of tightening, analysts said.
Spot gold was at $1,062.45 an ounce at 1503 GMT, little changed from $1,062.60 late on Monday. U.S. gold futures for February delivery were down $1.60 an ounce at $1,061.80.
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"The consensus is that the Fed is going to finally press that button and will raise the interest rate tomorrow," Ava Trade chief market analyst Naeem Aslam said. "However, gold traders are not feeling any panic."
"They are not going to face a merciless trading session because the trajectory of rate hikes is going to be ... very dovish."
The dollar recovered from an earlier six-week low against a basket of currencies after data showed underlying inflation pressures rose in the United States last month.
Global stocks rose while oil edged off multi-year lows, though concerns about the impact of the widely anticipated U.S. rate rise kept investors nervous.
Gold took little support from the physical markets. Gold prices in India swung to a discount for the first time in a month on Monday as jewellers and dealers in the world's second-biggest consumer postponed purchases ahead of the Fed meeting.
"Liquidity is starting to noticeably dry up, from both the upcoming FOMC and the approach of the Christmas holidays, which will likely only get worse in the coming two weeks," MKS said in a note.
"Chinese demand also historically drops off in December which could mean less natural support through the FOMC release and beyond," it said.
Among other precious metals, silver was up 0.3 percent at $13.76 an ounce, steadying after a six-day losing streak. It had dropped to $13.60 on Monday, its lowest since August 2009.
Platinum was up 0.5 percent at $856.20 an ounce, while palladium was up 3.1 percent at $561.48 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Jason Neely and David Clarke)