By Nick Godt, MarketWatch NEW YORK (MarketWatch) -- Gold futures were under pressure early on Tuesday, as talk the Federal Reserve may take a step towards ending its loose-money policy at the end of its two-day meeting curbed demand for gold as a hedge against inflation. The caution also offset the impact of U.S. reports showing U.S. production prices and industrial production were higher than expected in November. Gold for February delivery, the most active contract, fell $8.90, or 0.8%, to $1,114.90 an ounce. The front-month January contract was down $8.10, or 0.7%, at $1,115.20 an ounce. Krishna Guha, U.S. economics editor at the Financial Times, said the Fed might raise its discount rate or seek to draw a "sharp distinction" between its liquidity policy and its traditional monetary policy, guided by interest rates. After slashing its key Fed funds rate to near zero at the start of the year, the central bank took extraordinary steps to pump liquidity in the system, including massive purchases of debt and other assets. Caution about the Fed also helped lift the dollar, reducing gold's appeal as a hard asset and a hedge against weaker currencies. The dollar index (DXY 76.83, +0.49, +0.65%) , which measures the U.S. unit against a basket of six major counterparts, was up 0.7% at 76.92. On Monday, gold futures bounced back from a one-month low as the dollar lost some safe-haven demand after Abu Dhabi doled out $10 billion to help Dubai pay its debts. Analysts at GoldCore believe Monday's increase in "risk appetite" from investors may be challenged this week amid concerns about credit concerns in Europe, including Austrian banks' exposure to Eastern Europe and a possible bankruptcy for Greece.

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