Gold falls 2 pct, tracking losses across commodities

  LONDON (Reuters) - Gold fell more than 2 percent in Europe on Tuesday, tracking losses in other commodities, notably oil which lost more than $2 a barrel to a three-month low.

The dollar reached a new seven-week high against a basket of currencies, further dampening interest in gold. Traders are awaiting the rates announcement of the U.S. Federal Reserve later in the session.

Gold fell as low as $875.60 an ounce, its weakest level in nearly six weeks. At 1535 GMT it was at $877.00/878.00 an ounce, down from $895.55/896.95 late in New York on Monday.

COMEX December gold lost $22.10 to $878.00 an ounce.

A firm dollar typically pressures gold, as it dents the precious metal's appeal as an alternative investment.

"Gold has sold off on oil's steep falls and with sharp falls in many other commodity markets," said Mark O'Byrne, executive director of Gold and Silver Investments.

"The CRB Reuters Jefferies Commodity Index was down 3 percent yesterday, its largest one day sell-off since last March," he added.

Falling oil prices are also weighing on gold. U.S. crude futures slipped to a three-month low of $118 a barrel as traders focused on rising OPEC supply and easing demand in the United States and Europe.

Gold tends to track movements in crude, as it is often bought as a hedge against oil-led inflation. Weaker oil prices also undermine sentiment towards commodities as an asset class.

FED EYED

Traders are looking ahead to the Fed's rate-setting meeting, with a statement due at 1815 GMT. While rates are expected to stay at 2 percent, analysts say the bank's accompanying statement will be closely watched.

"The key event risk today is the FOMC decision," said JP Morgan analyst Michael Jansen. "The market is expecting no change, but looking for a small uptick in hawkish rhetoric. This could be US dollar supportive/metal negative."

Among other precious metals, platinum and palladium steadied after posting sharp losses earlier in the session, when platinum hit a fresh six-month low of $1,529 an ounce.

The white metal, chiefly used to make autocatalysts, has shed around 13 percent in the last week, while palladium has dipped nearly 10 percent.

The metals have been hit hard by the worsening outlook for the automotive sector.

Spot platinum was at $1,556.50/1,576.50 an ounce against $1,551.00/1,571.00. Spot palladium ticked up to to $351.00/355.00 an ounce from $349.50/357.50 late in New York.

Silver slid to $16.59/16.63 an ounce from $17.00/17.05.