PRECIOUS-Gold steadies below $1,250/oz ahead of Fed meeting

* Markets gear up for Fed policy meeting this week

* Money managers cut net gold, silver long positions

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

(Updates prices, adds comment) LONDON, Dec 11 (Reuters) - Gold steadied below $1,250 an ounce on Monday after its biggest weekly drop in more than six months, with moves muted ahead of an expected interest rate hike from the U.S. Federal Reserve this week.

Spot gold was at $1,247.48 an ounce at 1440 GMT,

little changed from late on Friday, while U.S. gold futures for February delivery were up $1.30 an ounce at $1,249.70. Spot prices fell 2.5 percent last week, their biggest weekly drop since May. The Fed is widely tipped to lift rates at its two-day policy meeting ending Wednesday, but its accompanying statement will be closely watched for any surprises. The bank is expected to increase rates another two or three times in 2018, but still-sluggish inflation and wage growth has raised question marks over that view. "The FOMC's policy statement, Fed Chair Yellen's final press conference in charge, and the update to the summary of economic projections will be closely parsed for signs the Fed's longer-term intentions," Mitsubishi analyst Jonathan Butler said. "Though we expect few major changes to Fed policy until new Fed Chair Powell takes office, dovish language or any caution on the future pace of interest rate hikes ... would give some support to gold by weakening the dollar and lowering Treasury yields." Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. In the wider markets, world stocks rose and equity volatility neared a record low ahead of a raft of central bank rate decisions, while newly launched bitcoin futures shot above $18,000. Hedge funds and money managers sharply reduced their net long positions in COMEX gold and silver contracts in the week to Dec. 5, U.S. data showed on Friday. Net positions in silver fell by the largest amount on record, by 34,915 contracts, Societe Generale said in a report. "Financial investors were downright fleeing from silver," Commerzbank said in a note. "The silver price has suffered disproportionate losses since mid-November, as is also reflected in the gold/silver ratio, which climbed last week to over 79."

Silver was down 0.4 percent at $15.77 an ounce. Platinum was down 0.1 percent at $886.40 an ounce,

after touching its lowest since February 2016 last week.

Palladium was 0.2 percent lower at $1,004.10 an ounce.

(Additional reporting by Apeksha Nair in Bengaluru, editing by Louise Heavens and David Evans)