PRECIOUS-Gold pares gains as investors digest US inflation data

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US core CPI rises 3.2% on a yearly basis in December

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Dollar down 0.3% against its rivals

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Markets expect 37.2 bps worth of rate cuts by year-end

(Updates with mid-session trading)

By Anjana Anil

Jan 15 (Reuters) -

Gold prices pared gains on Wednesday after a U.S. consumer inflation report offered mixed signals about the future path of rate cuts this year, even as a drop in the U.S. dollar and Treasury yields limited bullion's losses.

Spot gold was up 0.2% at $2,684.09 per ounce by 1125 a.m. ET (1625 GMT), after gaining around 0.5% following the CPI data. U.S. gold futures rose 0.9% to $2,706.60.

The consumer price index rose 2.9% in December, after increasing 2.7% in November, and was in line with expectations by economists polled by Reuters.

Excluding volatile food and energy components, core CPI increased 3.2% on an annual basis, compared with an expected 3.3% rise, the U.S. Bureau of Labor Statistics said on Wednesday.

"Initially, gold took off on the lower-than-expected core inflation print... After a while, the market is realising that even though the numbers are below expectations, we are seeing elevated levels of inflation significantly above the (Fed's) 2% target," said Bart Melek, head of commodity strategies at TD Securities.

Helping bullion, the dollar index eased 0.3%, making gold more attractive for other currency holders.

The benchmark 10-year Treasury yields also slipped.

"In the medium term, if today's data helps blunt the strength of the U.S. dollar and the relentless backup in yields, it should be good for gold," said Tai Wong, an independent metals trader.

"That said, it's one print and while it has pulled the June move to 50/50, it won't matter much for Fed policy in the next quarter."

Markets expect the Fed to deliver 37.2 basis points (bps) worth of rate cuts by year-end, compared with about 31 bps before the inflation data.

Non-yielding bullion is considered a hedge against inflation, although higher rates diminish its appeal.

Spot silver firmed 1.8% to $30.43 per ounce, platinum lost 0.2% to $933.40 and palladium added 1.4% to $952.50. (Reporting by Anjana Anil, Swati Verma, and Daksh Grover in Bengaluru; Editing by Vijay Kishore)