* Fed sets first U.S. rate hike in nearly a decade
* Increase is start of "gradual" tightening cycle
* GRAPHIC-2015 asset returns: http://link.reuters.com/dub25t (Rewrites throughout, updates prices; adds Fed statement, comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, Dec 16 (Reuters) - Gold held gains on Wednesday, after the Federal Reserve raised U.S. interest rates for the first time in nearly a decade, as expected, making clear it was a tentative beginning to a "gradual" tightening cycle.
The U.S. central bank's policy-setting committee raised the range of its benchmark rate by a quarter percentage point to between 0.25 and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs. urn:newsml:reuters.com:*:nTLAGNEB2J
"Gold has held steady as the dovish statement and lower dot plot has leavened the impact of the first rate hike in nine years," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
"The muted reaction suggests that the weakest shorts covered earlier today when gold traded above $1,078."
Spot gold XAU= was up 1.2 percent at $1,072.71 an ounce at 2:40 p.m. EST (1940 GMT), below the session high of $1,078.20. Prior to the Fed's statement, U.S. gold futures GCv1 for February delivery settled up 1.4 percent at $1,076.80 an ounce.
Gold prices have fallen nearly 10 percent this year, largely on the back of speculation that U.S. rates would be raised from record lows, lifting the opportunity cost of holding non-yielding bullion while boosting the dollar.
They have recovered from near six-year lows this month, however, as attention switched from the timing of the first hike to the potentially slow pace of future increases.
In a Reuters poll of more than 90 economists taken between Dec. 4 and 9, the probability that the Fed will raise rates rose to 90 percent. urn:newsml:reuters.com:*:nN9N12G01H ECILT/US
Global equity markets rallied in volatile trade while the dollar and U.S. Treasury yields rose after the Fed's statement. MKTS/GLOB
Investors scaled back positions in gold ahead of the Fed meeting. Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Trust GLD , are at their lowest since September 2008.
U.S. government data showed investors had increased their bearish bets on gold to record levels this month, although they have since edged back from that peak. urn:newsml:reuters.com:*:nL1N14022B
"The gold market is devoid of any funds coming in from gold-backed exchange-traded funds and jewelry demand remains fairly soft," said INTL FCStone analyst Edward Meir.
Silver XAG= was up 3 percent at $14.16 an ounce, having dropped to its lowest in more than six years this week at $13.60.
Platinum XPT= was up 1.7 percent at $869.75 an ounce and palladium XPD= was up 0.5 percent at $567.50 an ounce.