* Gold clings to biggest gain in nearly a month
* Traders await Fed statement at 1800 GMT
* Fed Chair Janet Yellen holds news conference at 1830 GMT (Updates prices)
By A. Ananthalakshmi
SINGAPORE, Sept 17 (Reuters) - Gold was trading near its highest in a week on Thursday, adding to overnight gains from its biggest jump in nearly a month, as sluggish U.S. inflation data eased fears the Federal Reserve would hike interest rates later this session.
Spot gold XAU= had ticked up 0.2 percent to $1,120.95 an ounce at 0638 GMT, near a one-week high of $1,124.30 reached in the previous session. The metal gained 1.3 percent on Wednesday in its biggest daily jump since Aug. 20.
"All eyes are on the Fed's interest rate decision later today which is the most anticipated announcement in years by the central bank," said James Cerisola, precious metals trader at MKS Group.
"A short squeeze across the precious complex prior to the FOMC caught the market off guard," he said, referring to the Federal Open Market Committee.
Prices got help from data on Wednesday that showed U.S. consumer prices unexpectedly fell in August. Softness in the dollar, following the inflation data, also supported gold prices. ID:nL1N11M0RR USD/
Signs of a disinflationary trend reasserting itself are in stark contrast with a fairly healthy economy and a rapidly tightening labour market, and highlight the dilemma Fed officials face as they contemplate raising interest rates for the first time in nearly a decade.
The U.S. central bank kicked off a two-day policy meeting on Wednesday, with a decision on interest rates expected at 1800 GMT on Thursday.
Expectations that the Fed would hike rates at this week's meeting had already been lowered due to recent concerns over slowing economic growth in China and volatility in financial markets.
In a Reuters poll of 80 economists, 45 said the Fed would keep its benchmark interest rate between zero and 0.25 percent, while 35 expected a hike. ID:nL4N11L32T
The uncertainty over the timing of a rate hike has weighed on gold all year. Higher rates could curb demand for non-interest-paying bullion.
"If rates were to be raised, then it would be no surprise to see gold prices sink quite quickly to $1,077," said Howie Lee, an analyst at Phillip Futures.
On the other hand, if the Fed leaves rates unchanged, the upside for gold prices would be limited as the move would create more uncertainty over the timing of an eventual rate hike, traders said.
Among other precious metals, silver XAG= was holding firm at $14.90, following a 3.5-percent jump in the previous session, its biggest one-day jump since May. Platinum XPT= rose for a third straight session.
PRICES AT 0638 GMT Metal
Last
Change Pct chg
Spot gold
1120.95
1.8
0.16 Spot silver
14.9
0.01
0.07 Spot platinum
970.5
2.26
0.23 Spot palladium
606.2
-2.8
-0.46 Comex gold
1120.6
1.6
0.14 Comex silver
14.915
0.03
0.2 Euro
1.13
DXY
95.293
COMEX gold and silver contracts show the most active months