PRECIOUS-Gold turns down after Fed's plan seen less dovish than expected

    * Dollar rebounds from 7-month low after Fed statement
    * Fed raises interest rates as expected
    * GRAPHIC-2017 asset returns:

 (Recasts throughout after Fed statement, updates prices; adds
comment, second byline, NEW YORK dateline)
    By Marcy Nicholson and Jan Harvey
    NEW YORK/LONDON, June 14 (Reuters) - Gold turned negative on
Wednesday after the Federal Reserve increased interest rates but
was less dovish than expected following a two-day meeting, and
the dollar sharply pared its losses against a basket of major
    It was the second time in three months that the Fed raised
interest rates by a quarter percentage point, which was widely
expected, and the U.S. central bank cited continued economic
growth and job market strength. It also announced it would begin
cutting its holdings of bonds and other securities this year.
    Spot gold        fell 0.2 percent at $1,263.03 an ounce by
3:10 p.m. EDT (1910 GMT), while U.S. gold futures        for
August delivery settled up 0.6 percent at $1,275.90 prior to the
Fed's statement.
    "Overall, nothing here to change our forecasts for another
hike in September and then the balance sheet unwind to start
later in December, given little apparent concern regarding the
recent weak data," said Andrew Grantham, senior economist at
CIBC Economics.
    Bullion rallied earlier when data showed an unexpected
month-on-month drop in U.S. consumer prices and retail sales,
suggesting inflation pressures are moderating, which stoked
expectations that Fed rate policy would remain cautious.
    The metal peaked at $1,279.37 as the dollar index fell to
its lowest since Nov. 9 following the data.            
    Gold is highly sensitive to rising U.S. interest rates,
which lift the opportunity cost of holding non-yielding bullion,
while boosting the dollar. 
    "The FOMC's decision to execute its normalization plan
despite recent soft economic data has forced gold to retreat
after its earlier exaggerated rally," said Tai Wong, director of
base and precious metals trading for BMO Capital Markets in New
    "The Fed still sees one more hike in 2017 and will start to
reduce its balance sheet nodding to strong growth and employment
while acknowledging soft inflation."
    Silver        was up 0.4 percent at $16.93 an ounce while
platinum       , which hit a near one-month low of $918.50 on
Tuesday, was up 1.8 percent at $939.80 an ounce. Palladium
      , which hit a 16-year high last week at $914.70, was down
2.4 percent at $861.40 an ounce.
    "The palladium price is expected to see a correction in the
short term after the exaggerated increase in the last few
weeks," Commerzbank said in a note. 
    "Afterwards the palladium price should rise to $850 per troy
ounce by year-end due to the expected large supply deficit and
the positive price trend in precious metals in general."

 (Additional reporting by Nithin Thomas Prasad and Vijaykumar
Vedala in Bengaluru; editing by Alexander Smith and Tom Brown)