By Jan Harvey
LONDON (Reuters) - Gold hit its highest in nearly a week on Tuesday as violence flared in the Middle East and Ukraine, but gains were capped by uncertainty ahead of a Federal Reserve policy meeting and important U.S. data later this week.
Israel's military pounded targets in the Gaza Strip on Tuesday after Prime Minister Benjamin Netanyahu said his country should prepare for a long conflict in the Palestinian enclave, squashing any hopes of a swift end to fighting.
Meanwhile, intense fighting between Ukrainian troops and pro-Russian rebels in eastern Ukraine killed at least 19 civilians, local officials said on Tuesday, as Kiev pressed an offensive to close in on the separatists.
Spot gold was up 0.3 percent at $1,307.20 an ounce at 0933 GMT, after slipping by a similar amount in the previous session. U.S. gold was up $4.50 at $1,307.80.
"I'm actually surprised that gold isn't up even more, given the numerous geopolitical risks," Commerzbank analyst Daniel Briesemann said. "We've had some relatively good economic data published of late, and we're currently seeing a stronger dollar. That is keeping the price in check."
"Ahead of the Fed tomorrow evening, no-one wants to take a major position," he added. "We don't think the Fed will come out with anything surprising, but you never know."
The Fed kicks off a two-day meeting later on Tuesday, with markets watching for clues as to when the U.S. central bank will begin increasing interest rates. The bank will make a statement on Wednesday at the end of the meeting.
Gold is highly sensitive to any changes in U.S. monetary policy, having rallied to record highs in the wake of the financial crisis after the Fed's extraordinary stimulus measures drove down interest rates while stoking fears of inflation.
MARKETS HOLD STEADY
On the wider markets, world shares hovered just below all-time highs, supported by a rally in Chinese stocks, though investors remained cautious ahead of a torrent of U.S. economic news due to come this week, including GDP data on Wednesday and non-farm payrolls on Friday.
The dollar held close to a six-month high against a basket of currencies ahead of the raft of data.
In the physical markets, demand was subdued as buyers were waiting on the sidelines for a possible drop in prices. Premiums in top buyer China were steady at about $2-$3 an ounce.
Buying in Asia's major gold consumers has shown signs of softening this year after a strong 2013, with China's net overseas purchases of gold through key conduit Hong Kong falling to a 17-month low in June.
"Indicators of Chinese gold demand are mostly pointing lower so far this year," UBS said on Tuesday. "Some investors are likely questioning whether or not this softness is cause for concern and indeed if the positive trend in gold appetite in China over the last several years is starting to turn."
The bank added, "The reality is that year-on-year comparisons can be quite misleading, considering the exceptional amount of physical demand last year."
Among other precious metals, silver was up 0.5 percent at $20.70 an ounce. Spot platinum was up 0.3 percent at $1,483.70 an ounce, while spot palladium was up 0.3 percent at $882.40 an ounce.
(Additional reporting by A. Ananthalaskshmi in Singapore; editing by Jane Baird)