NEW YORK/LONDON (Reuters) - Gold rebounded on Tuesday after weaker-than-expected U.S. durable goods data knocked the dollar to a session low against the euro, but prices remained hemmed into a narrow range as a two-day Federal Reserve policy meeting began.

Gold products are displayed for sale at a shop in Hanoi December 3, 2015. REUTERS/Kham/Files

Spot gold XAU= was up 0.3 percent at $1,241.66 an ounce at 2:08 p.m. EDT (1808 GMT), while U.S. gold futures GCv1 for June delivery settled up 0.3 percent at $1,243.40 an ounce.

The Fed, which will release its post-meeting statement at 2 p.m. EDT on Wednesday, is expected to hold interest rates steady, but traders will be watching for changes to its assessment of the U.S. economy, which could point to more rate increases later in the year.

Economists expect a Fed increase in June, with another by year-end. But interest rate futures show less conviction, underscoring the gap between markets and policymakers on the trajectory of rates.

“Our economists are looking for rates to remain unchanged (this week),” Standard Chartered analyst Suki Cooper said.

“We think risks are rising for the Fed to maintain a dovish view, and that’s going to set quite a positive background for gold prices,” she said. “If we get a hawkish tint in the statement, and the physical market remains weak, I can see prices falling towards $1,200 before they start to pick up.”

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

The metal is up 17 percent this year so far, chiefly on expectations that the Fed would hold off raising rates further after its first increase for nearly a decade in December.

“I don’t believe the Federal Reserve’s going to raise interest rates in the next several months,” said Stephen Kalayjian, chief market strategist of KnowVera.

“Between the bullish technical factors and the underpinnings of the Federal Reserve not looking to raise interest rates, I think it’s the perfect scenario for gold to trade higher in the months ahead.”

Supporting gold, the dollar .DXY fell as much as 0.7 percent against a currency basket after orders for long-lasting U.S. manufactured goods rebounded less than expected in March, suggesting the downturn in the factory sector was far from over. [FRX/]

Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares GLD, fell on Monday. [GOL/ETF]

Silver XAG= was up 0.5 percent at $17.07 an ounce, platinum XPT= was up 0.4 percent at $1,015.14, and palladium XPD= was down 0.04 percent at $600.75.