* Fed indicates one more rate hike this year
* Dollar hits two-month high versus yen
* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl
(Updates throughout, adds LONDON dateline) LONDON, Sept 21 (Reuters) - Gold fell to its lowest in nearly four weeks on Thursday as the Federal Reserve signalled it was on track to raise U.S. interest rates again in December, driving the dollar to two-month highs versus the yen. The metal is highly sensitive to rising U.S. interest rates, which boost the cost of holding non-yielding bullion relative to other assets, while lifting the dollar, in which it is priced.
Spot gold was down 0.5 percent at $1,295.51 an ounce
at 1005 GMT, having earlier touched its lowest since late August
at $1,292.84. U.S. gold futures for December delivery
were down $17.40 an ounce at $1,299. The metal has pulled back more than $60 an ounce since hitting its highest in more than a year earlier this month at $1,357.54. "The opportunity cost of holding gold seems to be going up now, and that's bad news for gold," LBBW's head of commodity research Frank Schallenberger said. "We went up to $1,350 so quickly, and now we have consolidation. With the wording from the Fed, that could go on for a while." "We will head down to $1,250 in the next couple of weeks, and then we'll think again (once) people have digested the news on interest rates," he said. In a statement following its latest two-day policy meeting, the U.S. central bank indicated it still expected one more increase by the end of the year in spite of a recent run of soft inflation readings. It also said it planned to trim the $4.2 trillion in bonds and other assets that it built up in the wake of the 2008 financial crisis in a bid to kick-start growth. The dollar rose to a two-month high against the yen and extended gains against the euro on Thursday, while banking shares also drove European bourses higher. From a technical perspective, gold is expected to steady around its late August low, according to analysts who study past price moves to determine the future direction of trade. "We look for the market to stabilise between here and (its) recent low at $1,275.69," Commerzbank said in a weekly note. "While above here we will maintain an upside bias. "Only a break below $1,251 would signal further slippage," it said.
Among other precious metals, silver was down 0.9
percent at $16.97 an ounce, after falling to its lowest since Aug. 25 earlier in the session at $16.89.
Platinum was 0.2 percent lower at $938.75 an ounce,
after hitting its lowest since late July on Wednesday, while
palladium was up 0.1 pct to $910.97 an ounce.
(Additioanl reporting by Apeksha Nair in Bengaluru; Editing by Edmund Blair)