PRECIOUS-Gold inches up as virus fears mount; markets await Fed decision

(Adds comment and updates prices)

* Death toll from coronavirus rises to 132 in China

* U.S. Federal Reserve policy statement due at 1900 GMT

* U.S. 10-yr yield curve briefly inverted on Tuesday

Jan 29 (Reuters) - Gold edged higher on Wednesday after falling 1% in the previous session, on elevated concerns over an economic impact of the coronavirus outbreak in China, while investors awaited a policy decision from the U.S. Federal Reserve due later in the day.

Spot gold rose 0.2% to $1,568.90 per ounce by 0807 GMT. U.S. gold futures fell 0.2% to $1,567.10.

The virus has caused panic in the market as it is spreading quickly and there is little known. It has claimed 132 lives so far and infected nearly 6,000 in China.

“It (China virus) is likely to create a problem going forward as a lot of industries are closing for certain days,” said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai, India.

“In this scenario, the manufacturing activity can get hampered further and the impact of the same should be visible in overall GDP growth (of China).”

Several airlines around the world reduced flights to China, while global companies restricted employee travel to the country.

Bullion is seen as a safe store of value during times of economic and political turmoil.

Asian shares fell as a spike in new cases of the virus sent Hong Kong stocks tumbling.

If there is an escalation in the crisis, gold prices can breach the $1,600 an ounce level, said Jeffrey Halley, senior market analyst, OANDA.

A brief inversion of the U.S. Treasury yield curve on Tuesday for the first time since October left investors unsettled as it often precedes a recession.

Investors are now waiting for the U.S. central bank’s monetary policy statement due at 1900 GMT. Analysts widely expect the Fed to stand pat on interest rates.

“The main driver for gold this year will be strategic inflows as it will continue to be viewed as an attractive diversifier for investor portfolios in an environment where rates remain low,” UBS strategist Joni Teves said.

The Fed is expected to make a slight increase on the interest it pays on excess reserves held at the central bank in a move, aimed at lifting the effective federal funds rate, currently near the bottom of its target range.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Elsewhere, palladium advanced 0.5% to $2,301.40 an ounce, while platinum rose 0.4% to $989.05.

Silver rose 0.3% to $17.48, having earlier dipped to its lowest since Dec. 23 at $17.35. (Reporting by Asha Sistla in Bengaluru; Editing by Subhranshu Sahu and Louise Heavens)