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Beat butter in large bowl with electric mixer at medium speed until smooth.
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Add sugar; beat until well blended.
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Add egg and vanilla; beat until well blended.
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Combine flour, baking powder and nutmeg in medium bowl.
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Add flour mixture and milk alternately to butter mixture, beating at low speed after each addition until well blended.
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Shape dough into 2 logs, each about 6 inches long.
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Wrap each roll in plastic wrap.
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Refrigerate 2 to 3 hours or overnight.
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Preheat oven to 350, grease cookie sheets.
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Cut logs into 1/4 inch thick slices; place 1 inch apart on cookie sheets.
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Keep unbaked logs and sliced cookies chilled until ready to bake.
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Bake 8 to 10 minutes or until edges are golden brown.
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Transfer to wire racks and decorate.
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Store in airtight container.