PRECIOUS-Gold turns down after Fed's plan seen less dovish than expected

* Dollar rebounds from 7-month low after Fed statement

* Fed raises interest rates as expected

* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl

(Recasts throughout after Fed statement, updates prices; adds comment, second byline, NEW YORK dateline) NEW YORK/LONDON, June 14 (Reuters) - Gold turned negative on Wednesday after the Federal Reserve increased interest rates but was less dovish than expected following a two-day meeting, and the dollar sharply pared its losses against a basket of major currencies. It was the second time in three months that the Fed raised interest rates by a quarter percentage point, which was widely expected, and the U.S. central bank cited continued economic growth and job market strength. It also announced it would begin cutting its holdings of bonds and other securities this year.

Spot gold fell 0.2 percent at $1,263.03 an ounce by 3:10 p.m. EDT (1910 GMT), while U.S. gold futures for

August delivery settled up 0.6 percent at $1,275.90 prior to the Fed's statement. "Overall, nothing here to change our forecasts for another hike in September and then the balance sheet unwind to start later in December, given little apparent concern regarding the recent weak data," said Andrew Grantham, senior economist at CIBC Economics. Bullion rallied earlier when data showed an unexpected month-on-month drop in U.S. consumer prices and retail sales, suggesting inflation pressures are moderating, which stoked expectations that Fed rate policy would remain cautious.

The metal peaked at $1,279.37 as the dollar index fell to its lowest since Nov. 9 following the data. Gold is highly sensitive to rising U.S. interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar. "The FOMC's decision to execute its normalization plan despite recent soft economic data has forced gold to retreat after its earlier exaggerated rally," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. "The Fed still sees one more hike in 2017 and will start to reduce its balance sheet nodding to strong growth and employment while acknowledging soft inflation."

Silver was up 0.4 percent at $16.93 an ounce while platinum , which hit a near one-month low of $918.50 on

Tuesday, was up 1.8 percent at $939.80 an ounce. Palladium , which hit a 16-year high last week at $914.70, was down 2.4 percent at $861.40 an ounce. "The palladium price is expected to see a correction in the short term after the exaggerated increase in the last few weeks," Commerzbank said in a note. "Afterwards the palladium price should rise to $850 per troy ounce by year-end due to the expected large supply deficit and the positive price trend in precious metals in general."

(Additional reporting by Nithin Thomas Prasad and Vijaykumar Vedala in Bengaluru; editing by Alexander Smith and Tom Brown)