* Fed holds U.S. interest rates steady
* Three Fed policy makers dissent on policy statement
* Bank of Japan targets long-term interest rates
(Recasts; adds comment, byline, NEW YORK dateline)
By Marcy Nicholson and Eric Onstad
NEW YORK/LONDON, Sept 21 Gold prices rose to
1-1/2-week highs on Wednesday, extending gains after the U.S.
Federal Reserve held interest rates unchanged but sent a strong
signal for monetary policy tightening before the end of 2016.
"The case for an increase in the federal funds rate has
strengthened," the U.S. central bank said in a statement
following a two-day policy meeting.
Spot gold was up 1.2 percent at $1,330.08 an ounce by
2:58 p.m. EDT (1858 GMT), after rising to $1,335.01 an ounce,
the highest since Sept. 9.
U.S. gold futures settled up 1 percent at $1,331.40
prior to the release of the Fed statement.
"Gold rallies the most in two weeks as a timorous majority
managed to impose its will over three dissenters," said Tai
Wong, director of base and precious metals trading for BMO
Capital Markets in New York.
"Gold is being bought as the market considers that the Fed
now has three months to find an excuse to skip even a December
hike and a realization 2017's voting Fed Presidents are much
more dovish than the current group."
Three of the policy makers dissented on the policy
statement, saying they favored raising rates this week.
"Overall, while the statement and dissents were more hawkish
than expected, the dovishness contained in the SEP (Summary of
Economic Projections) appear to be driving markets," said Royce
Mendes, director and senior economist at CIBC Capital Markets in
Toronto, adding that the bank expects a rate hike in December.
The U.S. dollar index fell around 0.3 percent against
a basket of major currencies.
Gold was already firm in earlier trade, along with stock
markets, after the Bank of Japan overhauled its monetary policy
framework, switching to targeting interest rates and side lining
more than three years of massive money printing.
"It provided a bit of a lift to gold as well as well as
other assets, but certainly we are going to be more or less on
hold until we see the Fed statement later," analyst Tom Kendall
at ICBC Standard Bank in London said.
In other precious metals, spot silver gained 2.4
percent at $19.72 an ounce.
Platinum climbed 2.3 percent at $1,049.20 and
palladium rose 0.2 percent at $682.50.
Macquarie does not expect any significant rally in platinum
until 2018 or 2019, the bank said in a note.
"The price will remain far lower than it has been in the
past, a legacy of declining diesel (vehicles) and the prospect
of EVs (electric vehicles), though platinum's relatively broad
range of uses will help cushion the blow."
(Additional reporting by Swati Verma and Nallur Sethuraman in
Bengaluru; editing by Susan Fenton and Diane Craft)