* European stocks and oil tick higher, dollar retreats
* Coming up: Start of Fed two-day policy meeting
* GRAPHIC-2016 asset returns: http://reut.rs/1WAiOSC (Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, April 26 (Reuters) - Gold retreated on Tuesday as a rebound in assets viewed as higher risk, such as oil and stocks, diverted some attention from the metal, though prices remained hemmed into a narrow range ahead of a U.S. Federal Reserve policy meeting.
The Fed is expected to hold interest rates steady at the meeting starting on Tuesday, but traders will be watching for changes to its assessement of the U.S. economy, which could point to more rate increases later in the year. gold XAU= was down 0.2 percent at $1,234.81 an ounce at 0930 GMT, while U.S. gold futures GCv1 for June delivery were down $3.60 at $1,236.60.
"Markets are not expecting the Fed to move, but there will be a lot of focus on the tone of the statement," UBS precious metals strategist Joni Teves said.
"Any continuation of the Fed's dovish tone should continue to underpin gold. Also, we have the Bank of Japan (policy meeting) shortly afterwards, and if both central banks sound dovish, that will feed into this easy policy world that gold investors have been zeroing in on this year."
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
The metal has risen 16 percent this year, chiefly on expectations that the Fed would hold off raising rates further after its first increase for nearly a decade in December.
Economists expect a Fed increase in June, with another by year-end. But interest rate futures show less conviction, underscoring the gap between markets and policymakers on the trajectory of rates.
Supporting gold, the dollar came under pressure from a recovery in the beleaguered yen as prospects of more monetary stimulus from the Bank of Japan remained unclear. FRX/
However, European shares rose half a percentage point on Tuesday and oil prices ticked higher, pointing to sharper appetite for higher-risk assets at the potential expense of gold. MKTS/GLOB
Holdings of the world's largest gold-backed exchange-traded fund -- New York-listed SPDR Gold Shares GLD -- fell 0.3 percent to 802.65 tonnes on Monday. They reached a two-year high earlier this year but have since plateaued. GOL/ETF
"Comex is heavily long and gold ETFs have stabilised. This may indicate limited investment demand going forward," HSBC said in a note.
Among other precious metals, silver XAG= rose 0.2 percent to $17.02 an ounce, platinum XPT= gained 0.2 percent to $1,013.10 and palladium XPD= fell 0.6 percent to $597.22.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC-2016 asset returns:
http://reut.rs/1WAiOSC PREVIEW-Fed seen holding rates this week with hike still on horizon