Gold logs slight gain before Fed policy decision

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Gold ended modestly higher on Tuesday ahead the Federal Reserve's policy announcement, remaining near an eight-month low, with investors unwilling to place big bets as they awaited clues on the timing of the first U.S. rate rise in eight years.

The Fed will began its two-day meeting earlier, with an announcement scheduled for Wednesday. Some analysts believe the Fed could signal it may begin raising rates sooner than mid-2015, the current consensus target.

Any increase in interest rates would dim the appeal of non-interest-bearing assets such as gold.

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settled $1.60 higher at $1,236.70 an ounce.

Spot gold was last up 0.3 percent to $1,236 an ounce. The metal posted its biggest weekly fall since late May last week on a stronger dollar and fell to its lowest since January at $1,225.30 on Monday before recovering.

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``In the longer term the bearish view for gold has not changed as the dollar has strengthened quite a bit since the beginning of July and U.S. data improved,'' Natixis analyst Bernard Dahdah said.

``But if the Fed holds the same tone, I don't see any particular change in the price of gold over the next few days.''

Gold gained some support from weakness in global equity markets, which fell to one-month lows on Tuesday, while the dollar was down 0.1 percent against a basket of currencies and the 10-year U.S. Treasury yield steadied above 2.5

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Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest.

The recent drop in prices failed to attract any robust physical buying from Asia, the world's biggest gold-consuming region, dealers said, though activity picked up slightly.