By Clara Denina
LONDON (Reuters) - Gold weakened on Thursday, after its biggest jump in a month, ahead a Federal Reserve policy decision that has investors divided on whether it will hike U.S. interest rates for the first time in nearly a decade.
The U.S. central bank started a two-day policy meeting on Wednesday, with a decision on interest rates expected at 1800 GMT on Thursday.
Spot gold was down 0.3 percent at $1,116.05 an ounce at 1154 GMT. The metal gained 1.3 percent on Wednesday in its biggest daily jump since Aug. 20, helped by data showing U.S. consumer prices unexpectedly fell in August.
Expectations that the Fed would hike rates at this week's meeting have been lowered due to concerns over slowing economic growth in China and volatility in financial markets.
In a Reuters poll of 80 economists, 45 said the Fed would keep its benchmark interest rate between zero and 0.25 percent, while 35 expected a hike.
"If the Fed doesn't make any announcement on raising rates then you could see a rally in gold because the dollar and yields will come off," Societe Generale analyst Robin Bhar said.
"However, gold would struggle above $1,140 or $1,150, as the first rate hike is not far away."
The dollar fell 0.2 percent against a basket of leading currencies, while European shares retreated.
Signs of a disinflationary trend reasserting itself in the United States contrast with a fairly healthy economy and a rapidly tightening labour market, and highlight the dilemma Fed officials face as they contemplate raising rates this year.
Higher interest rates would increase the opportunity cost of holding non-yielding bullion, while boosting the dollar.
"If rates were to be raised, then it would be no surprise to see gold prices sink quite quickly to $1,077," said Howie Lee, an analyst at Phillip Futures.
On the other hand, if the Fed leaves rates unchanged, the upside for gold prices would be limited as the move would create more uncertainty over the timing of an eventual rate hike, traders said.
Silver was down 0.5 percent at $14.81, following a 3.5-percent jump in the previous session, its biggest one-day gain since May. Platinum fell 1.2 percent to $959 an ounce and palladium dropped 0.8 percent to $604.90.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy and Mark Potter)
