Gold clings on near $1,200 ahead of Fed meeting

SINGAPORE (Reuters) - Gold clung to sharp overnight gains on Tuesday, bolstered by a weaker dollar and short-covering on rising expectations the Federal Reserve will not hint at a June rate hike at its policy meeting this week.

FUNDAMENTALS

* Spot gold (XAU=) had eased slightly to $1,199.60 (75,924 rupees) an ounce by 0040 GMT, after jumping nearly 2 percent in the previous session.

* The metal rose to its highest in a week at $1,207.01 on Monday on short-covering ahead of the Fed's two-day policy meet that kicks off later on Tuesday.

* Bullion was also helped by weakness in the dollar, which fell to a three-week low against a basket of major currencies.

* Investors will watch the Fed's policy statement on Wednesday for clues on the timing of a U.S. rate increase.

* Expectation had been for a June hike, but recent sluggish economic data has prompted many to believe the U.S. central bank would probably not act until later this year.

* If the Fed continues to hold rates near rock-bottom levels, gold prices could be supported. Higher rates, however, could dent bullion demand as it is a non-interest-paying asset.

* Investors were also keeping an eye on the Greek debt situation as any worsening could lead to safe-harbour demand for gold.

* Greek Prime Minister Alexis Tsipras on Monday reshuffled his team handling talks with European and IMF lenders, a move widely seen as an effort to relegate embattled Finance Minister Yanis Varoufakis to a less active role in negotiations.

* The latest developments suggested Tsipras was ramping up efforts to ease tensions with lenders and strike a deal to unlock aid so Greece can avoid defaulting on payments, which could force it out of the 19-nation euro zone.

* In other industry news, the London Bullion Market Association has commissioned consultancy EY to review the London gold market and recommend further developments, including the possibility of creating an exchange for gold trading in the city.

* SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.44 percent to 739.07 tonnes on Monday - the first decline in two weeks.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)