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PRECIOUS-Gold holds gains; caution prevails after Fed rate talk

BENGALURU, May 18 (Reuters) - Gold retained overnight gains
in Asian trading on Wednesday on weakness in the dollar and
equities, but investors remained cautious after Federal Reserve
officials talked up the prospect of U.S. interest rate increases
this year.
       
    FUNDAMENTALS
    * Spot gold was little changed at $1,278.65 per ounce
at 0042 GMT, after gaining 0.5 percent on Tuesday.
    * U.S. gold futures rose 0.27 percent to $1,280.40. 
    * The dollar index, which measures the greenback
against a basket of six major currencies, was nearly flat early
Wednesday. The currency weakened against the yen on positive
Japan economy data. 
    * Asian shares stepped back on Wednesday after strong U.S.
inflation data and comments from Fed officials rekindled the
prospects of the central bank raising rates later this year. 
    * MSCI's broadest index of Asia-Pacific shares outside Japan
 fell 0.3 percent in early trade, while Japan's
Nikkei was little changed, held up by
stronger-than-expected reading in Japan's April-June GDP.
 
    * Data on Tuesday showed U.S. consumer prices recorded their
biggest increase in more than three years in April as gasoline
and rents rose, pointing to a steady inflation build-up that
could give the Fed ammunition to raise interest rates later this
year. Other data showed housing starts and industrial production
rebounded strongly last month. 
    * A U.S. Federal Reserve policymaker said on Tuesday that he
will push for an interest rate hike in June or July and two
others still see up to three rate increases this year, leaving
the door open to a change in monetary policy relatively soon.
 
    * Gold has rallied 20 percent this year on speculation that
the Fed has slowed its expected pace of rate increases on
concerns over the volatility in global markets.
    * SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, said its holdings rose 0.56 percent to
855.89 tonnes on Tuesday, the highest since November 2013.
 
    * Investor appetite for palladium-backed exchange-traded
funds is failing to pick up after a dismal 2015, pointing to
another difficult year for the metal despite the prospect of a
deepening supply deficit. 
    * For the top stories on metals and other news, click
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    MARKET NEWS
    * Oil prices rose for a second straight day on Tuesday, with
U.S. futures hitting seven-month highs, on expectations of a
drawdown in U.S. crude stockpiles and a new wildfire threat on
Canadian oil supplies.  
    
    DATA AHEAD (GMT)
    0900 Euro zone Inflation, Final April 
    1100 U.S. MBA Mortgage application weekly
    2350  Japan machinery orders 


 (Reporting by Vijaykumar Vedala in Bengaluru; Editing by Ed
Davies)
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