* Fed officials hint at possible rate hike in June
* Dollar index rises after Fed minutes, weighing on bullion
(Adds NEW YORK dateline, updates prices, adds Fed detail)
By Devika Krishna Kumar and Clara Denina
NEW YORK/LONDON, May 18 (Reuters) - Gold fell more than one
percent on Wednesday as the dollar hit a new three-week high
following minutes of the U.S. Federal Reserve's last policy
meeting that bolstered expectations that the central bank could
soon raise interest rates.
The U.S. central bank will likely raise interest rates next
month if economic data points to stronger second-quarter growth
as well as firming inflation and employment, according to
minutes from the U.S. central bank's April policy meeting.
The indications followed a Fed policymaker's comment on
Tuesday he would push for an interest rate hike in June or July,
and two other Fed officials, who predicted up to three rate
increases this year.
Gold is highly sensitive to rising interest rates, which
increase the opportunity cost of holding it.
Spot gold XAU= dipped to a session low of $1,262.45 an
ounce after the news and was down 1.28 percent at $1,263.2 by
2:29 p.m. EDT (1829 GMT), while U.S. gold futures GCcv1
settled down 0.2 percent at $1,274.4.
U.S. data on Tuesday showed consumer prices recorded their
biggest increase in more than three years in April. Housing
starts and industrial production rebounded strongly last month,
suggesting the U.S. economy was regaining steam, adding to the
case for an early rate hike.
"The dollar is getting some attention today following the
CPI data, and that's likely to weigh on gold in the short term,"
Saxo Bank senior manager Ole Hansen said.
"However, if inflation is really starting to make a return
and that dollar strength starts being driven by inflation
concerns, there is a positive story for gold in the longer
term," Hansen said.
Gold is usually seen as a hedge against inflation.
Bullion has rallied 20 percent this year on speculation that
the Fed has slowed its expected pace of rate increases on
concerns about global economic growth and the volatility of
stock markets.
The rally has prompted prominent investors, including
billionaire financier George Soros, to buy into gold through
exchange-traded funds in the first quarter.
Holdings in SPDR Gold Trust GLD , the world's largest
gold-backed exchange-traded fund, rose 0.56 percent to 855.89
tonnes on Tuesday, the highest since November 2013. GOL/ETF
Spot silver XAG= slipped 1.52 percent to $16.96 per ounce,
spot platinum XPT= dropped 1.56 percent to $1,032.6 per ounce
and spot palladium XPD= fell 1.03 percent to $574 an ounce.