Gold gains 1 pct, focus on Federal Reserve meeting

LONDON (Reuters) - Gold rose nearly 1 percent on Tuesday on a weaker dollar, with investors waiting for a U.S. interest-rate cut by the Federal Reserve to establish a clearer market direction.

Bullion rose as high as $1,010.80 an ounce and was at $1,008.80/1,009.00 at 8:15 a.m. EDT, up from $1,001.00/1,001.80 late in New York on Monday.

It spiked to an historic high of $1,030.80 on Monday on concerns over the U.S. financial sector and a weak dollar before profit-taking erased most of the gains.

"The market is likely to continue to hold around yesterday's close ahead of the Fed rate meeting," said Suki Cooper, precious metals analyst at Barclays Capital.

"The current environment -- inflation concerns, equity market movements and the general credit market concerns -- is boosting prices, but the metal is primarily taking its lead from the dollar movement."

The dollar may come under pressure, further boosting gold prices, should the Fed cut rates by 100 basis points, she said.

The dollar eased back towards the previous day's record lows versus the euro on expectations of a hefty Fed rate cut that will make the currency the second lowest yielder in the G10.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

But some analysts said a cut was already priced into gold and the market would scrutinize closely the bank's statement following the decision for indications of its future path.

"If the Fed believes that in the due time economic crisis can be contained, then there could be marginal respite for dollar," said Pradeep Unni, analyst at Vision Commodities.

"Gold uptrend is intact, but there are high chances of a pull back after the decision. It is ideal to wait before fresh buying is attempted. High volatility is also likely," he said in a daily market note.

VULNERABLE IN SHORT-TERM

Gold has gained more than 23 percent this year on fears of inflation as crude oil has hit records, expectations of further rate cuts and deepening U.S. financial concerns.

"Short-term (gold) remains vulnerable to further bouts of long liquidation, but given the likelihood of rate cuts by the Fed and growing demand for safe-haven type assets in the current financial climate, we expect dips to remain short-lived," James Moore, analyst at TheBullionDesk.com, said in a report.

High prices continued to hit physical demand. Gold imports by India, the world's largest consumer, plunged to 10 tonnes in February from 59 tonnes in the same month a year ago.

Platinum hit a one-week low of $1,935 an ounce before rising, while silver and palladium stayed near their recent highs.

Spot platinum rose to $2,007/2,017 an ounce from $1,980/1,990 in New York and off a record high of $2,290 hit on March 4 on fund buying after a power crisis disrupted mining in main producer South Africa.

Platinum was supported by news that South African power utility Eskom may have to inform mines of a force majeure if more of its generators trip, Eskom spokesman Andrew Etzinger told Reuters.

Silver traded at $20.33/20.38 an ounce, versus $20.35/20.41 in New York, while spot palladium rose more than 3 percent to $481/486 an ounce from $465/470.

(Editing by Chris Johnson)