* Gold eases after two-day rally of more than 2 pct
* Fed says could still raise rates this year
* Lack of clarity on timing of rate hike to weigh on prices (Updates prices)
By A. Ananthalakshmi
SINGAPORE, Sept 18 (Reuters) - Gold dropped from a two-week high on Friday, giving back some of the sharp gains from the last two days, as the Federal Reserve's decision to hold U.S. interest rates steady this week added to uncertainty over the timing of an eventual rate hike.
Spot gold XAU= fell 0.3 percent to $1,127.70 an ounce at 0641 GMT, after climbing to a two-week high of $1,133.20 in the previous session. Still, the metal was on track to snap a three-week losing streak with a near 2-percent gain.
The Fed kept interest rates unchanged on Thursday, in a bow to worries about the global economy, financial market volatility and sluggish inflation at home. But the U.S. central bank maintained its bias towards a rate hike sometime this year. ID:nL1N11N244
Gold had been weighed down all year on uncertainty over when the Fed would hike interest rates from record-lows. Higher rates could dent demand for non-interest paying bullion, while boosting the dollar.
Weakness in the dollar and stock markets could prompt a rally in gold prices in the near term but the gains are unlikely to last, said INTL FCStone analyst Edward Meir.
"Because the Fed has made clear that it intends to raise rates by year-end, the markets will eventually start bidding the dollar higher and we could see gold's up move to be relatively short-lived," he said.
The Fed on Thursday also forecast inflation would creep only slowly toward its 2 percent target, which one bullion trader said was a negative for gold, often seen as an inflation-hedge.
The Fed is due to hold two more policy meets this year, in October and December.
A majority of Wall Street's top banks now expect the Fed to begin hiking rates in December, according to a Reuters poll conducted on Thursday. ID:nL1N11M2V0
The dollar nursed losses on Friday after slumping to a three-week low against a basket of major currencies in the previous session. USD/
Physical demand from Asia wasn't offering much support to gold prices.
Gold discounts in India, the world's second-biggest consumer, widened this week as dealers struggled to offload stocks amid sluggish demand. ID:nL4N11N2WY
Chinese premiums held steady at $5-$6 despite the overnight jump in prices, but failed to boost global prices.
PRICES AT 0641 GMT
Metal
Last
Change Pct chg
Spot gold
1127.7
-3.5
-0.31 Spot silver
15.03
-0.09
-0.6 Spot platinum
971.8
-8.8
-0.9 Spot palladium
604
-3.75
-0.62 Comex gold
1127.5
10.5
0.94 Comex silver
15.03
0.046
0.31 Euro
1.1405
DXY
94.537
COMEX gold and silver contracts show the most active months