Gold bounces on dollar drop

An employee of Mitsubishi Materials Corporation displays gold bars at the company's gold shop in Tokyo March 17, 2008.

NEW YORK/LONDON (Reuters) - Gold finished nearly 2 percent higher on Tuesday, rebounding from its recent sharp decline as funds poured into the market after the dollar slumped broadly on weak economic data.

Investors were cautious after their confidence was shaken by a recent sell-off in commodities, with gold falling more than 10 percent last week since spiking to a record high of $1,030.80 an ounce on March 17.

Platinum has fallen more than 20 percent from this month's record high of $2,290 before recovering, silver has slipped 20 percent from a 27-year high, and palladium has plummeted nearly 30 percent before moving higher.

Gold touched a low of $911.50 an ounce on Tuesday before hitting a high of $936.50. It was at $934.60/935.40 by New York's last quote at 2:15 p.m. EDT, against $920.90/921.70 in New York late on Monday.

"We see some consolidation in the market between $910 and $950, but the potential clearly remains on the upside," said Frederic Panizzutti, analyst at MKS Finance.

"Any continuation in the dollar's downside trend would enable gold to move towards the upper side of the range and possibly break it, but after the massive price correction the market would be cautious."

The dollar retreated broadly, posting its steepest loss against the euro in two weeks and hurt by concerns about the health of the U.S. economy and the global financial sector.

A private sector report showed U.S. consumer confidence in March fell to a five-year low, while expectations for the future dropped to their lowest level in 34 years. U.S. home prices for January fell in 16 of the 20 regions measured.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

"Gold is up today on bargain-hunting after the heavy losses of last week. A softer dollar is also encouraging buyers to return to the market," said David Thurtell, analyst at BNP Paribas.

"Weaker longs have been cleaned out, so we expect some consolidation at these levels. The next major signposts for gold will be U.S. ISM and nonfarm payrolls figures next week," he said, referring to the Institute for Supply Management data.

OIL PRESSURE

Gold was under pressure from oil, which initially fell as fresh concerns about weaker demand in top oil consumer the United States tempted some players to cash in. U.S. crude futures settled 36 cents higher to $101.22 a barrel.

"The market seems to be cautious after a massive crash and this fear to re-enter the market is likely to disappear as gold continues to stay above key supports," said Pradeep Unni, analyst at Vision Commodities in Dubai.

"We reiterate that fundamentals of gold that have been supporting its rally for the last eight years and more haven't changed in the last week's fall. Seldom do we get an opportunity to buy a commodity 10-12 percent cheaper in a bull market."

In U.S. markets, the active gold contract for April delivery on the COMEX division of the New York Mercantile Exchange settled up $16.30, or 1.8 percent, to $935 an ounce, but off a record high of $1,033.90 an ounce hit last week.

Platinum jumped 4 percent to $1,960/1,970 an ounce, against $1,880/1,890 late in New York on Monday.

"With the stock market going up yesterday, people are looking at recession risk weakening a little bit. So they are going to start investing a little more," said Adam Rabinowitz, floor trader with RJ Futures in New York.

Rabinowitz said Tuesday's rally was mostly boosted by speculators and day traders, and he cautioned that the recent wave of selling in platinum might not be over yet.

Palladium rose to $442/447 an ounce from its previous finish of $427/432, while silver was up at $17.80/17.85 an ounce from $16.95/17.00 in the U.S. market late on Monday.

(Editing by Jim Marshall)