By Clara Denina LONDON, Sept 16 (Reuters) - Gold rose on Tuesday ahead of a Federal Reserve policy meeting, but remained near an eight-month low, with investors unwilling to place big bets as they awaited clues on the timing of the first U.S. rate hike in eight years. The Fed will begin its two-day policy meeting later in the day, with an announcement scheduled for Wednesday. Some analysts believe the Fed could signal it may begin raising rates sooner than mid-2015, the current consensus target. Any hike in interest rates would dim the appeal of non-interest bearing assets like gold. Spot gold edged up 0.4 percent to $1,237.60 an ounce by 1157 GMT. The metal posted its biggest weekly fall since late May last week on a stronger dollar and fell to its lowest since January at $1,225.30 on Monday before recovering. U.S. gold futures added $3.20 an ounce to reach $1,238.30. "Gold is going into the Fed meeting looking very cheap relative to the dollar and other assets and it is pricing in quite a lot of bad news," Deutsche Bank analyst Michael Lewis said. "(The) market focus is more on the language of the Fed and whether it will remove that reference to 'considerable time' before any rate increase," Lewis added. "But if there is any sign that the Fed is not as hawkish as the market expects, then you could see some short-term boost to gold." Gold gained support from weakness in global equity markets which fell to one-month lows on Tuesday, while the dollar was down 0.1 percent against a basket of leading currencies and the 10-year U.S. Treasury yield steadied above 2.5 percent. Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest. "We remain biased to further downside (for gold prices), with the market appearing to be entering a period of sustained dollar strength, which will be a significant headwind for the gold price," ANZ said in a note. The recent drop in prices failed to attract any robust physical buying from Asia, the world's biggest gold-consuming region, dealers said, though activity picked up slightly. In top buyer China, daily trading volume of 99.99 percent purity gold on the Shanghai Gold Exchange hit a two-week high on Monday. Premiums climbed to about $4-$5 an ounce, compared with $2-$3 last week. Silver was up 0.7 percent at $18.70 an ounce, having touched its lowest level since June 2013 on Friday. Platinum rose 0.4 percent to $1,365.00 an ounce, while palladium gained 0.3 percent to $836.00.

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