* U.S. Fed to start two-day meeting on interest rates
Palladium hovers near record high of $1,808.81/oz (Updates prices, adds comments and details)
By Sumita Layek
Oct 29 (Reuters) - Gold fell on Tuesday as the dollar firmed and optimism about a U.S.-China trade deal increased, while investors looked ahead to this week's Federal Reserve meeting for signals on future interest rate cuts.
Spot gold was down 0.4% at $1,486.42 per ounce as of 1058 GMT. U.S. gold futures fell 0.5% to $1,488.30 an ounce.
"A slightly stronger dollar and comments out of the U.S. indicating that they still plan to have a deal by November supported the equity market in the U.S. and is keeping the upside in check for gold," UBS commodity analyst Giovanni Staunovo said.
"We have probably seen some hedge funds liquidating some gold positions and putting that money in the equity world."
The dollar firmed against a basket of rival currencies, making the dollar-denominated gold more expensive for holders for other currencies.
In the United States, the S&P 500 index hit a record high on Monday on hopes for possible trade deal between Beijing and Washington after U.S. President Donald Trump said he expected to sign a significant part of the deal ahead of schedule.
Washington was also considering an extension on tariff suspensions on $34 billion of Chinese goods.
Financial markets are waiting for further clues on the outlook for U.S. monetary policy from the Fed's meeting starting on Tuesday, where the U.S. central bank is widely expected to cut its benchmark interest rates for the third time this year.
"The markets have hopes for a rate cut at this meeting, but even if the Fed would take a pause this week, the markets are expecting another cut in this quarter ... which is supportive for gold," Quantitative Commodity Research analyst Peter Fertig said.
Lower interest rates make gold attractive as it reduces the opportunity cost of holding the metal.
Also on the radar was Brexit, with Prime Minister Boris Johnson making another attempt to secure a December election to break a deadlock after nearly three-and-a-half years of wrangling in parliament over Britain's exit from the European Union.
Elsewhere, palladium was down 0.5% at $1,790.59 an ounce, having hit a record high of $1,808.81 on Monday, on supply concerns.
"The market is in its eighth consecutive deficit year and is likely to stay in the ninth consecutive deficit year next year as well as supplies are not really growing," UBS's Staunovo said.
Silver fell 0.9% to $17.69 per ounce and platinum shed 0.8% to $911.23. (Reporting by Sumita Layek in Bengaluru. Editing by Jane Merriman)