Combine sugar and orange peel in medium bowl.
Add egg yolk and beat until light.
Add butter, salt and nutmeg and mix until light and fluffy.
Add remaining ingredients and mix thoroughly.
Do not overheat.
Divide dough into 4 equal portions.
Arrange each on sheet of plastic wrap.
Using plastic as aid, shape dough into 2 X 4-inch cylinders.
Seal and refrigerate until firm, 1 hour.
(Can be prepared ahead to this point and frozen.) Position rack in center of oven and preheat to 350°F.
Cut dough into 1/4-inch slices.
Arrange on ungreased baking sheet, spacing 1 1/2 inches apart.
Bake until edges are lightly browned, about 8 minutes.
Transfer to wire rack and let cool.