* Fed to cut monthly stimulus to $75 bln
* Also lowers inflation, unemployment outlook
* Stock market rally, dollar gains pressure gold
* Coming up: U.S. Core PCE Price index Friday
NEW YORK, Dec 18 (Reuters) - Gold fell about 1 percent in choppy trade on Wednesday, after the U.S. Federal Reserve lowered its inflation forecast and signalled better prospects for the economy as it announced plans to trim its bond-buying stimulus. In what amounts to the beginning of the end of its unprecedented support for the U.S. economy, the central bank said it would reduce its monthly asset purchases by $10 billion, bringing them down to $75 billion. Bullion initially rose after the U.S. central bank said it "likely will be appropriate" to keep overnight rates near zero "well past the time" that the jobless rate falls below 6.5 percent, especially if inflation expectations remain below target. The metal tumbled in late sessions as the dollar extended its rally and the S&P 500 equities index rose nearly 2 percent to close at a record high. "There is no inflation anywhere in sight. At the end of the day, you're going to have a stronger dollar when you take the fear out of financial markets," said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC. Spot gold was down 0.8 percent at $1,219.21 an ounce $4 above a five-month low of $1,211.44 set on Dec. 4. U.S. gold futures for February delivery settled up $4.90 an ounce at $1,235 prior to the Fed announcement. Turnover was weak, considering the volatile gold market. Trading volume was about 10 percent below its 30-day average, preliminary Reuters data showed.
FED LOWERS INFLATION OUTLOOK In fresh quarterly forecasts, the central bank lowered its expectations for both inflation and unemployment over the next few years, acknowledging the jobless rate had fallen faster than expected. Three policymakers expect the first rate rise to come in 2016, up from only two policymakers in September, while 12 of the Fed's 17 top officials still see the move in 2015. Other analysts said that gold prices should still be underpinned in the longer term as the U.S. central bank is expected to react slowly to creeping inflation. "The Fed is all but promising to be behind the curve in raising interest rates when inflation does pick up," said Axel Merk, portfolio manager of California-based Merk Funds, which has about $450 million worth of assets under management. Investment interest in physical gold funds continued to wane. The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, reported another 2.1-tonne outflow from its holdings on Tuesday. Among other precious metals, silver was down 0.4 percent at $19.79 an ounce. Platinum fell 0.8 percent to $1,334.74 an ounce, while palladium was down 0.2 percent to $695.97 an ounce.
4:15 PM EST LAST/ NET PCT LOW HIGH CURRENT SETTLE CHNG CHNG VOL US Gold FEB 1235.00 4.90 0.4 1215.20 1244.00 150,442 US Silver MAR 20.059 0.219 1.1 19.425 20.265 40,999 US Plat JAN 1342.70 -1.90 -0.1 1330.30 1355.50 14,536 US Pall MAR 699.45 -1.60 -0.2 697.00 710.50 4,272 Gold 1219.21 -10.39 -0.8 1216.45 1244.25 Silver 19.790 -0.080 -0.4 19.690 20.240 Platinum 1334.74 -10.99 -0.8 1338.20 1357.00 Palladium 695.97 -1.28 -0.2 698.90 708.25 TOTAL MARKET VOLUME 30-D ATM VOLATILITY CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 155,665 172,085 187,998 21.35 0.28 US Silver 44,913 56,366 57,730 30.95 0.72 US Platinum 21,312 11,386 12,549 16.41 0.16 US Palladium 4,309 6,659 5,926 21.05 -1.02