* Shares up, dollar down as Fed sounds cautious note
* Silver rises above $16/oz, first time since October
* GRAPHIC-2016 asset returns: reut.rs/1WAiOSC
* GRAPHIC-FOMC rate predictions: tmsnrt.rs/1RzUE7v (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, March 17 (Reuters) - Gold turned lower on Thursday, consolidating from a 2.5 percent surge in the previous session when the Federal Reserve cut the number of interest rate rises it forecasts for this year, sending the dollar sharply lower.
The U.S. central bank held interest rates steady and indicated it would tighten policy this year, but fresh projections showed policymakers expect two quarter-point increases by year-end, half the number forecast in December.
Spot gold was down 0.4 percent at $1,257.11 an ounce at 3:02 p.m. EDT (1902 GMT), after climbing 0.7 percent to $1,270.90.
"Yesterday was the excitement. Today is more the consolidation phase," said James Steel, chief metals analyst for HSBC Securities in New York, referring to the prior session's rally in response to the Fed's dovish statement.
U.S. gold futures for April delivery settled up 2.9 percent at $1,265 an ounce. The futures market's move higher was due to its lower close prior to the Fed statement on Wednesday.
Expectations the Fed would raise rates steadily this year had faded since the bank's initial hike in December, as concerns over global growth roiled financial markets.
Wednesday's statement suggested the Fed remained cautious on the potential risks posed by an uncertain global economy.
"It was expected that the Fed wouldn't raise rates, (but) the tone sounded less optimistic than the market had thought," Natixis analyst Bernard Dahdah said.
Rising rates tend to pressure gold by lifting the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
The U.S. dollar index dropped to a five-month low while shares in major markets were on track to close at their highest level of the year.
Further gains in gold prices could prove elusive without further stimulus, analysts said.
"I ... think we shouldn't expect too much strength immediately after this announcement, since not that many people thought rates would rise again at this point," Glaux Metal consultant David Jollie told the Reuters Global Gold Forum.
"They key questions are rather what is going to happen to inflation and when might rates rise later this year."
Among other precious metals, spot silver briefly rose above $16 an ounce for the first time since October, up 2.8 percent to $16.03.
"Silver has already eroded a couple of bearish trend lines and has broken above some key resistance levels too," said Fawad Razaqzada, technical analyst for Forex.com.
Platinum was up 0.7 percent at $983 an ounce and palladium was up 2.2 percent at $592.40.
Additional reporting by Naveen Thukral in Singapore; Editing by David Goodman and Mark Potter