UPDATE 7-Gold hits record on dlr tumble, possible rate cuts

(Recasts, updates with quotes, closing prices, market activity, adds NEW YORK to byline)

By Frank Tang and Atul Prakash

NEW YORK/LONDON, Feb 27 (Reuters) - Gold surged to a record high on Wednesday, nearing $1,000 an ounce as investors were spurred by a plummeting dollar, oil's initial rally and speculation there will be further U.S. rate cuts.

Gold bullishness was reaffirmed by weak U.S. economic data and Federal Reserve Chairman Ben Bernanke's reassurance that the central bank was ready to cut interest rates again to prevent the distressed housing and credit markets from further damaging a weak economy.

Silver also rallied to its loftiest level since November 1980, palladium jumped to a 6-1/2 year high and platinum advanced to trade near last week's record highs before paring gains.

Spot gold XAU= rose as high as $964.70 an ounce and was at $957.50/958.30 by New York's last quote at 2:15 p.m. EST (1915 GMT), against $946.60/947.40 in New York late on Tuesday. It has gained 16 percent this year.

The benchmark U.S. April gold contract at the COMEX division of the New York Mercantile Exchange GCJ8 settled $12.10, or 1.3 percent, higher at $961.00.

"The main driver is the record low U.S. dollar, but apart from that gold should remain fairly well supported even if the currency retracts," said Walter De Wet, precious metals analyst at Standard Bank.

"There are not many alternatives out there right now. Equities are currently high risk investments and still have negative returns for the year. U.S. Treasury is a traditional safe-haven, but there is also not a lot of value.

The dollar fell to its lowest-ever price against a basket of currencies and traded below $1.50 per euro for the first time on Wednesday. Returns on U.S. holdings are eroding for foreign investors and many see precious metals as hard assets that can protect portfolios.

"People are realizing that the European Central Bank does not intend to cut rates any time soon, even while the U.S. is slashing rates. And that's just the environment that is tailor-made for the increases in the euro. That's going to be positive for gold," said Patrick Fearon, precious metals analyst with A.G. Edwards in St. Louis.

Gold held its gains in spite of a sharp turnaround in crude oil, which initially set a record above $102 a barrel on Wednesday. U.S. crude futures settled down $1.24 at $99.64 a barrel due to rising inventories.

Gold is used as a hedge against inflation. Still, while oil is basically at a record price in real terms, as well as current prices, gold is far from a real inflation-adjusted record, which analyst GFMS has put it as high as $2,079 an ounce.

"Investor interest in commodities as a whole remains very strong. There is a lot of talk from pension funds about pumping more money into commodities," said Dan Smith, metals analyst at Standard Chartered Bank

"I can't see prices pulling back to a massive extent, even though physical gold demand appears to be softer."

BROAD-BASED RALLY