PRECIOUS-Gold flat as investors focus on Fed verdict

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Fed interest rate decision due at 1800 GMT

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Markets see 65% chance of 50-bp rate cut

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By Daksh Grover

Sept 18 (Reuters) - Gold prices held their ground on Wednesday as investors weighed the chances of an outsized interest rate cut by the U.S. Federal Reserve later in the day.

Spot gold was little changed at $2,567.13 per ounce, as of 0508 GMT. Bullion rose to a record high of $2,589.59 on Monday.

U.S. gold futures rose 0.1% to $2,593.60.

The Fed is expected to announce a rate reduction for the first time in more than four years at 1800 GMT. Chair Jerome Powell will hold a press conference afterwards.

Markets are pricing in a 65% chance of a 50-basis-point (bp) cut, up from 34% a week earlier, according to the CME FedWatch tool.

There's a real risk that market expectations are too optimistic about the Fed making a 50-basis point cut and If that doesn't happen, we could see yields and the dollar rise significantly, creating pressure on gold, Matt Simpson, senior analyst at City Index, said.

If the Fed delivers a 25-bp cut and guides expectations for another 25-bp reduction going forward, gold could dip back beneath the $2,570 level, he added.

Zero-yield bullion tends to be a preferred investment in a lower interest rate environment and during geopolitical turmoil.

Meanwhile, data released on Tuesday showed that U.S. retail sales unexpectedly rose 0.1% in August, suggesting that the economy remained on solid footing through much of the third quarter.

In the Middle East, militant group Hezbollah promised to retaliate against Israel, accusing it of triggering explosions in Lebanon on Tuesday that killed nine and injured nearly 3,000.

On the physical front, India's August gold imports stood at $10.06 billion, compared with $3.13 billion in July, according to the trade ministry.

Among other metals, spot silver fell 1.1% to $30.39 per ounce, platinum edged 0.4% lower to $977.60 and palladium shed nearly 1% to $1,105.18.

(Reporting by Daksh Grover in Bengaluru; Editing by Subhranshu Sahu and Sonia Cheema)