* Gold gives back some of overnight gains
* Palladium drops nearly 3 pct
* Dollar index up 1 pct after U.S. rate hike (Updates prices)
By A. Ananthalakshmi
SINGAPORE, Dec 17 (Reuters) - Gold slipped on Thursday to give back some of its overnight gains, with trading choppy as the dollar surged after the Federal Reserve hiked U.S. interest rates for the first time in nearly a decade.
The U.S. central bank raised the range of its benchmark interest rate by a quarter of a percentage point on Wednesday, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.
Gold has slumped nearly 10 percent this year, largely on uncertainty around the timing of the rate rise and on fears that higher rates would hit demand for the non-interest-paying metal. It had fallen to a near-six-year low earlier this month.
Spot gold XAU= had dipped 0.6 percent to $1,066.20 an ounce by 0609 GMT. The metal had rallied before the Fed decision on Wednesday and managed to hold most of those gains after the central bank statement, ending the day up 1.2 percent.
U.S. gold GCcv1 fell 1 percent to a session low of $1,064.20, following a 1.4 percent gain in the previous session.
"This morning, it is more of a dollar story," said a Hong Kong-based precious metals trader.
"The market pretty much expected the comments we heard from the Fed," the trader said, adding that the most-likely move for gold was to go lower.
The dollar index .DXY , which measures its strength against a basket of six major currencies, rose 1 percent on Thursday. A robust dollar makes greenback-denominated gold more expensive for holders of other currencies.
Other precious metals also took a hit from a stronger dollar. Palladium XPD= fell nearly 3 percent to a session low of $552.22 an ounce, while silver XAG= and platinum XPT= dropped about 1 percent each.
With the much anticipated first rate hike out of the way, the focus now shifts to the pace of future rate increases.
The U.S. central bank made clear the rate hike was a tentative beginning to a "gradual" tightening cycle. urn:newsml:reuters.com:*:nL1N1441IT
But the rate forecasts, or dot points, from Fed members were a little higher than many expected with 100 basis points of hikes pencilled in for next year and a terminal rate of 3.5 percent.
The divergence between the Fed forecasts and the market could hurt gold prices as investors begin to align their views with the central bank.
"Gold has been extraordinarily sensitive to perceived changes in monetary policy for many months," said HSBC analyst James Steel. "The rate rise may finally clear the deck and remove rate-related uncertainty from the bullion market."
The Fed action leaves gold positioned for some modest gains, largely from short-covering, but much of the impact on bullion will come from the dollar move, he said.
PRICES AT 0609 GMT
Metal
Last
Change Pct chg
Spot gold
1066.2
-6.36
-0.59 Spot silver
14.06 -0.114
-0.8 Spot platinum
860.2
-12.9
-1.48 Spot palladium
555.55
-12.9
-2.27 Comex gold
1065.7
-11.1
-1.03 Comex silver
14.055 -0.193
-1.35
COMEX gold and silver contracts show the most active months