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Gold prices steadied on Tuesday after shedding more than 1% in the last session as the dollar paused its rally, but stuck to a relatively tight range as traders held off for more policy signals from the Federal Reserve.

Spot gold ticked 0.2% higher to $1,771.85 per ounce by 0950 GMT. U.S. gold futures edged up 0.2% to $1,784.20.

Better-than-expected U.S. services industry data spooked investors on Monday, offering more evidence of underlying economic momentum and raised fears that the Fed might stick longer with aggressive interest rate increases.

Bullion dropped from a five-month high to close 1.6% lower in the previous session as the dollar rebounded after the data prompted speculation the Fed may lift rates more than recently projected.

"The movement in yields and the U.S. dollar continues to be the key driver for gold prices, with the main support down near the $1,725 area," said Michael Hewson, chief markets analyst at CMC Markets.

"With the Fed due to meet next week the direction of prices is likely to be determined on how the U.S. central bank sees the glide path for future rate rises," Hewson added.

Higher interest rates weigh on gold's appeal as they increase the opportunity cost of holding the non-yielding metal.

Helping gold stabilise, the dollar index seemed to stall after its biggest rally in two weeks on Monday. A stronger dollar dulls bullion's appeal for overseas investors. [USD/]

"With market trying to seek clarity on Fed's rate hike plan, rate expectations have been sensitive to incoming economic data. Signs of stronger-than-expected demand may lead markets to revisit more hawkish expectations," said IG Market strategist Yeap Jun Rong.

Investors also took stock of easing COVID restrictions in top bullion consumer China.

Spot silver rose 0.9% to $22.4363 per ounce, while platinum fell 0.5% to $993.00.

Palladium eased 0.3% to $1,870.89.