* Fed indicates one more rate hike this year
* Also plans to trim asset holdings in $4.2 trillion portfolio
* GRAPHIC-2017 asset returns: http://tmsnrt.rs/2jvdmXl (Adds comments, details on U.S. legislation, updates prices, milestones; adds NEW YORK dateline)
By Devika Krishna Kumar and Jan Harvey
NEW YORK/LONDON, Sept 21 (Reuters) - Gold fell about 1 percent to its lowest in nearly four weeks on Thursday, shrugging off further weakness in the dollar, after the Federal Reserve signalled it was on track to raise U.S. interest rates again in December.
The metal is highly sensitive to rising U.S. rates, which boost the cost of holding non-yielding bullion relative to other assets, while lifting the dollar, in which it is priced.
Spot gold XAU= was down 0.7 percent at $1,291.46 an ounce by 3:25 p.m. EDT (1925 GMT), having earlier touched its lowest since late August 25 at $1,287.61. U.S. gold futures GCv1 for December delivery settled at $1,294.80.
"It's follow through from yesterday ... I think the tone people are thinking about is that it's hawkish enough," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
"If we start to get healthcare legislation, tax policy, repatriation, that means better economic growth and that's a headwind for gold, so investors may be thinking that this is a reasonable time to be taking profits as we price in a December rate increase."
In a statement on Wednesday following its latest two-day policy meeting, the U.S. central bank indicated it still expected one more rate increase by the end of the year in spite of a recent run of soft inflation readings. also said it planned to trim the $4.2 trillion in asset holdings that it had built up in the wake of the 2008 financial crisis.
U.S. Vice President Mike Pence on Thursday urged fellow Republicans to get behind the party's "last best chance" to repeal and replace Obamacare as congressional leaders scrambled to secure enough support ahead of a planned vote next week. has pulled back more than $60 an ounce since hitting its highest in more than a year earlier this month at $1,357.54.
"The only hope for gold is if we see an unexpected fall in the dollar or a sharp rise in risk aversion, which would boost the appeal of the perceived safe haven commodity," said Fawad Razaqzada, technical analyst for Forex.com.
"Otherwise gold could fall back sharply given that it has also suffered major technical damage in not being able to hold its own above the key $1,300 handle for too long."
The dollar hit a two-month high versus the yen after the Fed decision, but later fell against the euro after European Central Bank President Mario Draghi said monetary policy was not the right instrument to address financial imbalances in the euro zone. FRX/ XAG= was down 1.1 percent at $16.94 an ounce, after falling to its lowest since Aug. 25 earlier in the session at $16.80.
Platinum XPT= was 0.3 percent lower at $936.10 an ounce, after touching a near eight-week low of $925 earlier in the day, while palladium XPD= was up 0.2 percent to $911.60 an ounce.