PRECIOUS-Gold steadies with investors cautious as U.S. rate rise looms

* Dollar, European and U.S. shares ease
    * Crude oil weakness caps weighs on gold prices

 (Recasts; updates prices; adds comment, byline, NEW YORK
    By Marcy Nicholson and Clara Denina 
    NEW YORK/LONDON, Dec 9 (Reuters) - Gold prices flattened on
Wednesday, giving back earlier gains as oil prices fell and
shrugging off support from the weak U.S. dollar and shares as
investors remained cautious ahead of an anticipated Federal
Reserve rate hike next week. 
    The U.S. central bank is widely expected to raise interest
rates for the first time in nearly a decade at its next policy
meeting on Dec. 15-16. 
    Higher rates should dent demand for non-interest-paying
gold, which has already lost 9 percent of its value this year
and is on track for its third year of losses. 
    Spot gold rose 1 percent to a session high of
$1,085.20 an ounce but was flat at $1,074.31 an ounce at 2:39
p.m. EST (1939 GMT). The metal is around $35 higher than a
near-six-year low reached last week.
    Oil prices fell as the market ignored an unexpected drawdown
in U.S. crude stockpiles to focus on a build in distillates,
including diesel, that was twice as big as expected. 
    Weakness in oil could trigger fears of deflation, a bearish
factor for gold, which is often used as a hedge against oil-led
    "It has been negative for gold for quite some time and
continues to be," said James Steel, chief metals analyst for
HSBC Securities in New York, referring to oil prices.
    He added that trade was thin and expectations for a U.S.
rate hike kept a lid on bullion prices.
    U.S. gold futures for February delivery settled up
$1.20 at $1,076.50 an ounce.
    "I don't think the rate hike will be a surprise in itself,
but it will depend on the language of the Fed, and we may even
see some support if that suggests the rate hiking cycle will be
slower than people expect," Natixis analyst Bernard Dahdah said.
    The dollar fell sharply as investors cleared out long
positions on the greenback against the yen, sterling and euro in
thin trading, with each rising more than 1 percent. 
    "We are expecting continued downward pressure for gold next
year, depending on whether the market begins to price in more
rate hikes or not, as the dollar is going to moderately rise,"
Citi strategist David Wilson said.
    Investors have been boosting bets that gold will soon drop
to $1,000 an ounce. 
    Silver rose 0.2 percent to $14.19 an ounce. Platinum
 gained 0.8 percent to $852.48 an ounce and palladium
 was up 0.6 percent at $548.87 an ounce.

 (Additional reporting by A. Ananthalakshmi in Singapore;
Editing by David Evans and Meredith Mazzilli)