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Gold prices edged higher on Thursday, as the U.S. dollar and bond yields slipped after the Federal Reserve held interest rates steady and acknowledged the tighter financial conditions faced by businesses and households.

FUNDAMENTALS

* Spot gold was up 0.2% to $1,985.99 per ounce by 0147 GMT and U.S. gold futures gained 0.3% to $1,993.80.

* The Fed held interest rates steady on Wednesday as policymakers struggled to determine whether financial conditions may be tight enough already to control inflation, or whether an economy that continues to outperform expectations may need still more restraint.

* The dollar index was down 0.5% against its rivals, making gold less expensive for other currency holders, while Benchmark U.S. 10-year note yields fell to a more than two-week low. [USD/] US/]

* Fed Chair Jerome Powell said that market borrowing costs would need to be sustainably higher for that to bear on future central bank monetary policy choices.

* Higher interest rates raise the opportunity cost of holding gold.

* SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 0.24% to 861.51 tonnes on Wednesday from 859.49 tonnes on Tuesday. [GOL/ETF]

* On the geopolitical front, Israeli forces killed another Hamas commander on Wednesday in their second strike on Gaza's Jabalia refugee camp in two days, the military said.

* Market focus now shifts to U.S. non-farm payrolls report on Friday for more cues on Fed's interest rate path.

* Data on Wednesday showed U.S. job openings increased in September, pointing to persistent labor market tightness that is supporting the economy.

* Spot silver eased 0.2% to $22.94 per ounce, platinum rose 0.6% to $925.97 and palladium rose 0.9% to $1,112.58.

DATA/EVENTS (GMT)

0850 France S&P Global Mfg PMI Oct

0855 Germany HCOB Mfg PMI Oct

0855 Germany Unemployment Chg, Rate SA Oct

0900 EU HCOB Mfg Final PMI Oct

1200 UK BOE Bank Rate Nov

1230 US Initial Jobless Clm Weekly

1400 US Factory Orders MM Sept