Gold steadied around $1,200 on Tuesday on bargain hunting as investors bet the U.S. Federal Reserve would take further steps to ease monetary policy later in the day, boosting bullion's safe-haven appeal.

Researchers at the San Francisco Federal Reserve Bank said there is a significant chance the U.S. economy will slip back into recession in the next two years although a reversal is unlikely in the next few months.

Thai jewelers and physical buyers in Hong Kong bought gold at lower levels, but consumers from Indonesia were on the sidelines, waiting for a price correction.

Gold added 45 cents to $1,200.45 an ounce by 1:56 a.m. ET, having hit an intraday low of $1,198.80. Bullion had fallen slightly on Monday as a firmer dollar prompted investors to lock in profits ahead of a closely watched statement by the Fed at 2:15 p.m. ET.

Investors await the outcome of the FOMC meeting. The Fed may announce plans for further quantitative easing to stimulate the economy, which could benefit gold, said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

Should this occur, gold prices may tick up to $1,210. I remain bullish on gold on a long term basis, said Ong, referring to a high seen mid-July.

U.S. gold futures for December delivery were barely changed at $1,201.8 an ounce.

Cash gold and U.S. futures struck a lifetime high in June on worries the euro debt crisis was spreading and the U.S. economy was slowing. Dismal U.S. jobs data on Friday fueled speculation the Fed could soon buy U.S. debt to support the economy.

The euro slipped against the dollar while the Nikkei .N225 erased early gains, but the market was split on whether the Fed's meeting will take any new steps in quantitative easing. .T

Most investors seem to assume the Fed will sound more cautious on the recovery, but there the agreement ends.

Platinum group metals tracked equities higher.

Dealers noted light physical buying in Hong Kong but consumers from mainland China were on the sidelines after snapping up gold last week, when the government said it would allow more banks to import and export gold due to growing demand.

I think sentiment is bullish after gold rises to these levels. It's also important to note the Chinese government is pushing people to buy gold instead of property, said a dealer in Hong Kong.

But I think Chinese buyers will wait and see at these levels. If the price goes back down to $1,180, you may see people coming back to buy.

Annual house price inflation in China fell in July for the third month running under the impact of a government drive against property speculation.

Zijin Mining Group (2899.HK) (601899.SS) said a government-ordered production suspension affecting two of its mines in China's Shandong province would have an impact on its annual output target.

(Editing by Ed Lane)

China Federal reserve Gold