PRECIOUS-Gold prices firm ahead of Fed policy statement
* Stocks edge lower ahead of Fed, dollar holds steady
* Traders hoping for guidance on monetary policy timeline
* Physical demand sluggish in China, India-traders
LONDON, June 19 (Reuters) - Gold firmed on Wednesday as stock markets retreated ahead of a Federal Reserve policy statement, but uncertainty over the future of the U.S. central bank's quantitative easing programme kept the price in a narrow range.
Fed Chairman Ben Bernanke said last month the bank could scale back its $85 billion monthly bond purchases if the U.S. economy strengthens, but a lack of clarity on the timing has unsettled markets.
Policymakers are likely to announce later that they will keep buying bonds at the same pace, while keeping their options open to scale back the programme later this year if the U.S. labour market continues to improve.
Spot gold was at $1,375.16 an ounce at 1351 GMT, up 0.5 percent, while U.S. gold futures for August delivery were up $7.60 an ounce at $1,374.50. Gold broke below its recent trading range on Tuesday to slide 1.2 percent, its biggest one-day loss in nearly two weeks.
"Bottom line, we expect no tapering on the basis that current economic data don't support such a move," Saxo Bank vice president Ole Hansen said. "But the Fed is now responsible for market regulation and stability, and the sell-off in bonds over the past months may have rattled them a bit."
"Ahead of (the Fed), I see gold potentially retracing some of its losses from yesterday," he added.
European shares were down 0.25 percent in light and volatile trade as investors looked for clues on the duration of the Fed's equity-friendly stimulus programme. The dollar index held steady as uncertainty kept traders on the sidelines.
"The FOMC statement is still likely to highlight recent improvements in the labour market, potentially once again suggesting a gradual reduction to the QE3 pace in the very near future," VTB Capital said in a note.
"Any hints at this time frame will be one of the most eagerly awaited insights for the currency markets and, eventually, for gold."
PHYSICAL DEMAND SLUGGISH
Buying in India and China, the top two gold consumers, remained sluggish as demand eased from peak levels seen in April and May. Shanghai gold futures fell more than 1 percent, while Indian gold futures edged lower.
Holdings of the SPDR Gold Trust, the largest gold-backed exchange-traded fund, fell 0.2 percent to 1,001.67 tonnes on Tuesday, their lowest in more than four years.
Among other precious metals, silver was up 0.5 percent at $21.75 an ounce, while spot platinum was down 0.6 percent at $1,431.99 an ounce and spot palladium was down 0.6 percent at $703.50 an ounce.
Platinum and palladium have underperformed this month to fall 1.5 percent and 5.5 percent respectively, although palladium remains the best performer of the major precious metals this year.
"Industrial interest has somewhat helped to protect the downside in PGMs, but with the entire precious metals complex under pressure at the moment, prospects for a recovery in the near term appear limited for now," UBS said in a note.
"Yet despite the correction, underlying sentiment towards PGMs has not soured. In a sense the washout has actually been welcomed and is deemed healthy," it added. "Those who have caught the move lower are keeping a very close eye out for opportunities to close out shorts or re-establish longs."
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Keiron Henderson and Jane Baird)