* Gold dips after upbeat U.S. data, dollar pares losses
* South Africa supply concerns underpin platinum group metals
* Palladium rises to 16-month high at $726.50/oz (Updates prices, adds comment)
By Clara Denina
LONDON, Jan 17 Platinum and palladium prices hit multi-month highs on Thursday after upbeat U.S. housing and jobs data sparked a rise in U.S. stocks to five-year highs, cut early losses in the dollar index and boosted appetite for commodities.
Supply concerns from major producer South Africa also continued to drive prices higher, after miner Anglo American Platinum announced an overhaul that it said could cost it 400,000 ounces of platinum production a year.
Spot platinum hit a high of $1,701.50 and was up 0.8 percent at $1,696.99 an ounce at 1538 GMT, while spot palladium was up 0.3 percent at $723.22 an ounce, having earlier hit a 16-month high of $727.
Amplats miners returned to work after an illegal walkout to protest against the world's top platinum producer's plan to cut 14,000 jobs, close two mines and sell another.
But analysts were still positive on platinum group metals, with platinum staying close to parity with bullion as demand for use in auto emissions was seen improving in China and the U.S. amid constrained supply.
"Potential for further supply shocks in the PGMs does have all the ingredients for an interesting few weeks in terms of prices," INTL Commodities CEO Jeff Rhodes said.
"I think the premium of platinum over gold, once it gets through parity, will pick up momentum and there is a significant chance of platinum moving back to a normal type of premium of at least $100," he added.
Data released on Thursday showed the number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week, while groundbreaking to build new U.S. homes accelerated in December to its fastest pace in over four years.
Other metals like copper and crude oil rose after the numbers. Gold prices initially fell to a session low of $1,665.94 an ounce after the data, but regained that ground as U.S. stocks and other commodities rallied.
Gold moved back above its 200-day moving average this week, a key chart level, after falling below that level in early January after minutes of a Federal Reserve policy meeting showing concern about the scope of monetary easing.
"We are still in a period of trial, trying to rebuild the confidence into the gold market," Saxo Bank vice president Ole Hansen said. "We have not breached any critical levels yet to the upside, which could signal that further strength could be coming."
"While we still stay above the 200-day moving average around $1,662, there is a lot of nervousness in the market," he added. "We've seen big swings at the start of January, we spent the last week trying to recover from that."
Spot gold was up 0.6 percent at $1,672.09 an ounce, while U.S. gold futures for December delivery were up $4.50 an ounce at $1,687.70.
Dealers said physical buying interest, which had been strong at the start of the month in several Asian countries, ebbed.
"What we did see in the gold dips was strong physical demand across the Asian world including Thailand and India but since the rally back to current levels the physical market has definitely slowed," INTL's Rhodes said.
Silver stood at $31.69, up 0.9 percent. (Additional reporting by Jan Harvey; Editing by Veronica Brown and Alison Birrane)