* Palladium hits highest since Feb. 27
* U.S. Fed seen raising interest rates
By Sethuraman N R
BENGALURU, Sept 25 (Reuters) - Gold held steady on Tuesday as investors were cautious ahead of a U.S. Federal Reserve meeting, which could offer direction on future interest rate hikes, while markets kept a close eye on developments on the Sino-U.S. trade front.
Spot gold XAU= was barely changed at $1,199.06 by 0628 GMT.
U.S. gold futures were mostly steady at $1,203.70 an ounce.
"Gold is glued to the $1,200 see-saw levels with some short positions closing just in case the Fed does something unexpected, give some notion of a pause in the 2019 rate hike cycle," said Stephen Innes, APAC trading head at OANDA, Singapore.
Investors await details from the two-day Fed meeting beginning later in the day, when the U.S. central bank is expected to raise benchmark interest rates and shed light on the path for future rate hikes.
"A dovish inference could send gold prices above the critical $1,210 level. There's a lot of cross-action inference on this week's forward guidance from the Fed meeting," he added.
Higher U.S. interest rates typically pressure gold, since it costs to store and insure the metal, but does not pay interest.
Gold has fallen more than 12 percent since hitting a peak in April against a backdrop of trade disputes and as rising U.S. interest rates diminish demand for non-interest bearing bullion.
China and the United States imposed a new round of tariffs on each other's goods that took effect on Monday, intensifying a trade dispute that is expected to hit global growth. months-long trade rift between Washington and Beijing drove investors to buy dollar instead of gold in the belief that the Washington has less to lose from the dispute.
"If lingering trade war fears or renewed emerging market jitters sour sentiment, U.S. dollar may reclaim a haven bid, making gold vulnerable," said Ilya Spivak, a currency strategist for Dailyfx.
The dollar index against a basket of six major currencies .DXY edged up 0.1 percent to 94.325. USD/
"Gold is making a strong base between $1,195-$1,205 ... It doesn't look like it will break the support range," said Vandana Bharti, assistant vice president of commodity research at SMC Comtrade Ltd.
"The Fed meet will limit upside or stimulate some correction in the first half of the week ... In the second half, we can see lower-level buying in gold across the board and this time silver should match in step with gold."
Silver XAG= was up 0.3 percent at $14.26 an ounce.
Spot palladium XPD= was steady at $1,057.60 after hitting its highest since Feb. 27 at $1,061.80.
Platinum XPT= rose 0.6 percent to $829.20.