Gold flat ahead of Fed verdict; trade optimism and firm dollar weigh

• US Fed policy statement due at 1800 GMT
• Gold hit three-week low on Tuesday

By Brijesh Patel

Oct 29 (Reuters) - Gold prices were flat on Wednesday, ahead of a widely expected interest rate cut from the Federal Reserve, although expectations of a potential U.S.-China trade deal and a stronger dollar kept bullion near a three-week low.

Spot gold XAU= was flat at $3,951.59 per ounce, as of 0513 GMT, after dropping to its lowest point since October 7 on Tuesday.

U.S. gold futures GCcv1 for December delivery fell 0.4% to $3,965.20 per ounce.

The dollar index .DXY rose 0.2% against its rivals, making gold more expensive for other currency holders.

"The fuel for this short-term correction in gold is a readjustment of safe-haven instrument towards more response instrument like global equities due to trade optimism," OANDA senior market analyst Kelvin Wong said. MKTS/GLOB

"In the near-term, gold faces downside pressure due to position adjustment from short-term leverage players and technical levels that are being breached. However, the fundamentals are still bullish for gold."

Top Chinese and U.S. economic officials over the weekend hashed out the framework of a trade deal for U.S. President Donald Trump and his Chinese counterpart Xi Jinping, that would pause steeper American tariffs and Chinese rare-earths export controls.

Trump and Xi are set to meet in South Korea on Thursday.

"Progress in U.S.-China trade talks continues to sap demand for haven assets such as gold, which extended a pullback as tension eased ... The recent declines may provide an opportunity for central banks to ramp up purchases," ANZ said in a note.

Meanwhile, the Fed is widely expected to cut the interest rate by a quarter-percentage point at the end of its policy meeting on Wednesday, and investors are watching out for any forward-looking language from Chair Jerome Powell.

The European Central Bank is expected to leave rates unchanged at its policy meeting on Thursday.

Non-yielding gold thrives in a low-interest-rate environment and during economic uncertainties.

Gold prices have climbed about 52% year-to-date, reaching an all-time peak of $4,381.21 on October 20, bolstered by geopolitical and economic uncertainties, rate-cut bets and sustained central bank buying.

Spot silver XAG= gained 0.8% to $47.38 per ounce, platinum XPT= fell 0.8% to $1,572.70 and palladium XPD= eased 0.1% to $1,392.28.