* Palladium hits highest since Feb. 27
* Speculators raise net shorts in COMEX Gold
* U.S. Fed's two-day policy meeting starts on Tuesday
By Renita D. Young and Eric Onstad
NEW YORK/LONDON, Sept 24 (Reuters) - Gold was barely changed on Monday after the dollar dropped following remarks by the head of the European Central Bank then later pared losses, although activity was muted ahead of a U.S. central bank meeting this week.
Spot gold XAU= increased 0.04 percent at $1,199.57 per ounce by 1:44 p.m. EDT (1744 GMT), giving up earlier gains.
U.S. gold futures GCcv1 December delivery settled up $3.10, or 0.3 percent, at $1,204.40 per ounce. Liquidity was thin during Asian trading hours on Monday as markets in Japan and China were closed for a holiday.
The dollar index .DXY fell after comments by ECB President Mario Draghi on wage growth and vigorous inflation lifted the euro EUR=EBS . The greenback later pared losses. FRX/
"I remain constructive on gold after we've seen it consolidate for the past month. The risk to the dollar is some additional weakness, but at this stage we have to maintain a neutral stance," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Investors await details from the Federal Reserve meeting concluding on Wednesday, when the U.S. central bank is expected to raise benchmark interest rates and shed light on the path for future rate hikes.
Higher U.S. interest rates typically pressure gold, since it costs to store and insure, but does not pay interest.
"Realistically, it could be a muted move, because the rate increase is already priced in," said George Gero, managing director of RBC Wealth Management.
Gold has fallen more than 12 percent since its April peak against a backdrop of trade disputes and rising U.S. interest rates.
The United States and China imposed fresh tariffs on each other's goods as the world's biggest economies showed no signs of backing down from a trade dispute that is expected to knock global economic growth. speculators increased their net short position in COMEX gold contracts in the week to Sept. 18, U.S. data showed on Friday. CFTC/
"The price would rise noticeably if sentiment were to turn and short positions were to be covered. This may happen following the Fed rate hike expected on Wednesday, as gold has often gained following a Fed rate hike in the past," Commerzbank (DE:CBKG) said in a note.
Spot palladium XPD= gained 0.9 percent at $1,058.72 an ounce after hitting $1,060.70, its highest since Feb. 27.
Platinum XPT= added 0.3 percent at $829.10 per ounce.
"Demand continues in platinum and palladium for electric vehicles," said Gero, following news that Volkswagon's Porsche dropped diesel in its push for electric cars. XAG= rose 0.3 percent at $14.29 an ounce.