Gold prices eased on Tuesday, pausing their sharp rally driven by the U.S. banking crisis, as the dollar rebounded, while traders positioned for inflation data that could also influence the Federal Reserve's interest rate strategy.

Spot gold was down 0.5% at $1,903.20 per ounce, as of 0924 GMT. U.S. gold futures also fell 0.5% to $1,906.90.

Bullion prices rallied more than 2% in the previous two sessions as investors sought cover after the collapse of Silicon Valley Bank (SVB) spooked the market.

The dollar index was up 0.4%, making greenback-priced bullion less attractive for buyers holding other currencies.

"Gold is taking a breather after its recent run-up spurred by contagion fears," said Han Tan, chief market analyst at Exinity.

But "as long as the contagion risks stemming from the ongoing SVB saga remain, potentially ramping up recession risks along the way, safe-haven assets are set to remain well bid in the interim".

Considered a hedge against economic uncertainties, zero-yield gold also becomes a more attractive bet in a low interest rate environment.

Fitch Ratings, ANZ and Citi were among those who raised their gold price outlook this week as the SVB saga unfolded.

Traders are now expecting a 31.4% chance of the Fed holding rates in the current range.

Focus is now on the U.S. consumer price index (CPI) report due at 1230 GMT, with a Reuters poll suggesting consumer prices likely rose at a solid pace in February.

If the headline CPI print comes in much lower than the market forecast and bolsters the Fed pivot narrative, it could potentially send the precious metal into the mid-$1,900 region, Tan said.

Spot silver fell 0.8% to $21.64 per ounce.

Platinum lost 0.8% at $987.95, after climbing to over a one-month peak in the last session. Palladium shed 0.9% at $1,460.38.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Shilpi Majumdar)