* Dollar's retreat from highs relieves some pressure on gold
* Minutes of Fed's Jan meeting due at 1900 GMT
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl (Recasts throughout, updates prices; adds analyst comment, NEW YORK to dateline)
By Renita D. Young and Jan Harvey
NEW YORK/LONDON, Feb 21 (Reuters) - Gold steadied on Wednesday after its biggest one-day slide in 2-1/2 months as investors awaited Federal Reserve policy meeting minutes for clues on the outlook for U.S. interest rates.
Prices edged off lows as the dollar pared early gains against the euro, which had pressured the metal to a one-week low, but remained hemmed within a narrow range. FRX/
Spot gold XAU= was unchanged at $1,329.38 an ounce by 1:38 p.m. EST (1838 GMT), after earlier dropping to $1,325.20. U.S. April gold futures GCcv1 settled up 90 cents, or 0.1 percent, at $1,332.10 per ounce.
"The bounce after yesterday's decline has been severely limited by dollar strength," said James Steel, chief metals analyst at HSBC Securities.
Gold prices have fallen more than 1 percent this week as the dollar pulled back from three-year lows against a currency basket, and remain highly sensitive to any further sign of strength in the U.S. unit.
The metal's reaction to the U.S. dollar comes as markets anticipate a more hawkish stance by the Fed, Mitsubishi analyst Jonathan Butler said.
"Expectations of higher rates, seen in yields and probably in the language of the Fed minutes later today, are underpinned by signs of rising inflation," Butler added. metal slid 1.3 percent on Tuesday, the most on any day since Dec. 7, as a rise in U.S. yields boosted the dollar and weakened the appeal of non-interest bearing gold. Benchmark 10-year Treasury yields hovered near a four-year peak on Tuesday.
Yields have risen after the U.S. Treasury Department issued more debt in anticipation of a higher deficit from last year's tax overhaul and a budget deal that will lift federal spending over the next two years. US/
The minutes will be watched for comment on inflation pressures in the world's biggest economy, which could speed up the pace of rate hikes.
Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
Markets are also anticipating minutes from the European Central Bank on Thursday, Steel added.
"We'll see what that does to dollar-euro (relationship). Gold follows dollar-euro quite closely," Steel said.
Interest in physical gold has been muted this week during the Lunar New Year holiday across much of Asia, including major consumer China.
Among other precious metals, silver XAG= rose 0.9 percent to $16.61 an ounce, up from a one-week low of $16.37, while palladium XPD= dropped 0.7 percent to $1,026.60 and platinum XPT= dropped 0.7 percent to $992.50, off a $988 low.