(Corrects lead to say palladium hit 17-month highs, not platinum)
* Gold recovers on weak dollar; thin demand limits rebound
* Palladium surges on fund buying activity
By Barani Krishnan and Clara Denina
NEW YORK/LONDON, Feb 12 (Reuters) - Gold rebounded from a six-week low to trade flat on Tuesday as the dollar fell, while palladium hit 17-month highs after funds chased up prices of the jewelry- and autocatalytic- making metal deemed to be in short supply.
The dollar fell versus the euro and yen after the Group of Seven rich nations said it remained committed to market-determined exchange rates, and that fiscal and monetary policies must not be directed at devaluing currencies.
The spot price of gold, which initially tumbled to $1,638.82 an ounce, its lowest since Jan. 4, hit a session high of $1,663.81 after the G7 statement boosted the precious metals’ appeal as a dollar hedge.
By 2:30 p.m. ET (1930), gold’s spot price hovered around $1,650, versus the late Monday afternoon level of $1,649.36.
While it had clawed back from the day’s low, analysts said gold could not rally as investors seemed to be drawn more to the brightening global economic picture that called for lower dependence on safe-haven assets such as bullion -- and more risk appetite in investments like stocks and commodities.
Lunar New Year holidays in China and a few Asian countries this week have crimped demand in the physical as well as futures markets of gold, traders said.
Some noted that gold also failed to reprise its safe-haven role in Tuesday’s trading after the Iran-Israel nuclear spat flared anew and North Korea confirmed it conducted an underground nuclear test.
“It was an extremely quiet day in gold,” said Frank McGhee, head precious metals trader at Chicago’s Integrated Brokerage Services. “The market tried a couple of times at least to get past the $1,638 high, but there was no follow-up buying.”
That was quite a contrast to the activity in palladium and platinum, which are collectively known as the platinum group metals and used in making jewelry and auto catalytic converters.
PGMs have soared in value since the middle of last year due to concerns about shrinking output due to mining disruptions in South Africa and a drop in supply from Russia. Expectations of robust automotive sales have also boosted prices.
In Tuesday’s market, palladium’s spot price surged nearly 2 percent to $772 an ounce -- a high dating back to Sept. 5, 2011 -- before paring gains to trade at around $768. Palladium hovered near $756 late Monday.
Platinum also rallied, though it came short of setting a new milestone. The spot price of platinum was up 1.6 percent at $1,712.49 an ounce versus the previous session’s level of near $1,686.
Gold has underperformed the two metals since the start of the year as signs of improved economic recovery around the world -- particularly in the auto industry -- pushed hedge funds and other major speculators towards platinum and palladium.
“Alternative and more volatile assets, including PGMs, offer better returns away from gold” now, said Andrey Kryuchenkov, analyst at Moscow-based commodities broker VTB. (editing by Gunna Dickson)