By Laura Mandaro, MarketWatch PORT LOUIS, Mauritius (MarketWatch) -- Gold futures edged higher in electronic trading Wednesday as the U.S. dollar weakened against its major counterparts, weighed down by expectations the Federal Reserve will keep its low-rate stance at the end of its monetary-policy meeting. Gold for August delivery rose $5.40, or 0.4%, to $1246.40 an ounce in electronic trading on Globex. The contract ended the prior New York floor session with a 10-cent gain, with advances held back by uncertainty about the Fed's rate decision. If the Fed keeps rates low, that should weigh on the U.S. dollar, analysts say. Weaknesses in paper currencies - such as the euro - have been a boost to gold, which has soared to highs in both euro and dollar denominations, in part because of its attraction as an alternative to paper currencies. "Should interest rates be kept at a low level long term, the U.S. dollar could come under pressure and this could generally support gold prices," said analysts at Commerzbank in emailed comments. Pradeep Unni, analyst at Richcomm Global Services in Dubai, said prices are likely to be "range-bound" ahead of the decision. But gold also faces fundamental challenges, he added. "Gold is weighed by the lackluster physical demand in the key demand centers, and this is likely to keep a lid on prices in the near term," he said. The U.S. dollar fell against the euro, yen and pound. The dollar index (DXY 86.01, -0.10, -0.12%) , which tracks the U.S. unit against six major counterparts, slipped to 85.974 from 86.079 in late North American trading Tuesday.

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