* Fed sees U.S. economy growing 6.5% in 2021
* Palladium hits more than 1-year peak (Recasts; adds comments, updates prices)
By Nakul Iyer
March 17 (Reuters) - Gold prices rose over 1% on Wednesday after the U.S. Federal Reserve reiterated its accommodative monetary policy which also weakened the dollar.
Spot gold XAU= rose 0.8% to $1,743.93 per ounce by 1642 EDT, after gaining as much as 1.2%.
U.S. gold futures GCv1 settled 0.2% down at $1,727.10.
The Federal Reserve on Wednesday repeated its pledge to keep the benchmark overnight interest rate near zero for years to come. central bank sees the economy growing 6.5% this year, the most since 1984, and unemployment falling to 4.5% by year's end.
"One of the key takeways is the that Fed needs to see results in terms of economic growth, inflation and employment before they move to hike rates and not forecasts and that should support gold in the near-term," said Edward Moya, senior market analyst at OANDA.
The dollar .DXY fell 0.5%, making greenback-denominated gold cheaper for other currency holders. USD/
"The one fly in the amber is that the bond market is so far not that impressed, which could help support the dollar and put a lid on the gold rally," Tai Wong, a trader at investment bank BMO in New York said, pointing to elevated U.S. Treasury yields.
Benchmark yields remained high after the Fed projected a jump in economic growth with no rate hikes through 2023. US/
Gold is seen as a hedge against inflation, but rising Treasury yields have challenged that status as they translate into a higher opportunity cost of holding bullion.
Gold is less appealing to investors as yields are being driven by nominal rates instead of inflation expectations, TD Securities commodity strategist Daniel Ghali said.
Silver XAG= rose 1.3% to $26.30 an ounce, while platinum XPT= was steady at $1,211.81.
Palladium XPD= rose 2.8% to $2,568.61, having hit an over one-year high of $2,578.31 earlier.