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Gold settles under $1,310; tapering outlook in focus

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Gold settled under $1,310 an ounce on Tuesday on prospects that the Federal Reserve will announce a modest reduction in its bond-buying stimulus at its two-day meeting.

Markets expect the Fed's Open Market Committee, which started its meeting on Tuesday, will announce it will begin curbing its $85 billion monthly bond buying by just $10 billion, a smaller reduction than previously anticipated.

Spot gold edged 0.2 percent lower near $1,311 an ounce, after falling 1.5 percent in the previous session to a five-week low of $1,303.85.

U.S. gold futures for December delivery settled $8.40 lower at $1,309.40 an ounce.

"The market is confused by the fact that the Fed will start reducing its stimulus but will still be dovish because the underlying growth is not strong enough and interest rates could be maintained low until 2016," BofA Merrill Lynch analyst Michael Widmer said. "You could potentially have a little bit of rallying if tapering comes in below expectations but in the longer-term you'd sell the rally as the Fed starts tightening its stimulus."

The dollar was lower against a basket of currencies, while share markets were mixed, with European stocks falling and U.S. equities opening higher.

U.S. consumer prices barely rose in August as the cost of energy fell, but an increase in rents and medical care costs pointed to a stabilization in underlying inflation.

Gold has lost 21 percent of its value this year after the Fed signaled it would start reining in QE, which would reduce financial liquidity in the market.

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—By Reuters.

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