(Updates with closing in Tokyo)
By Lewa Pardomuan
SINGAPORE, Jan 11 (Reuters) - Gold hit a record high near $900 an ounce on Friday, driven by hopes of a half-point cut in U.S. interest rates later this month that could raise the metal's appeal as an alternative investment.
In the physical sector, fears of further rises ignited buying from jewellers in Indonesia and Thailand, but retail investors in other parts of Asia, especially Japan, cashed in on their holdings to take advantage of sky-high prices.
Spot gold XAU= rose as high as $898.00 before profit taking kicked in, mostly led by Japanese investors. It was later quoted at $893.40/894.20, still higher than $889.90/890.60 hit late in New York on Thursday.
COMEX gold futures also touched a record high, with the most active February contract GCG8 rising as high as $899.90 an ounce before slipping to $896.3, up $2.7 from Thursday's close.
"We are not talking about $900 now. We are talking about $1,000," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
"Of course sentiment is really bullish, but I think the more bullish the market is, the more dangerous it is," he said.
Leung expected gold to trade in the $885 to $900 range on Friday but said the market could succumb to heavy profit taking, especially given the extent of long positions held by funds.
Gold, which rallied more than 30 percent in 2007, entered the new year on a firm note, rising more than 7 percent on a trail of market-friendly factors including a struggling dollar and record high crude oil prices.
The dollar held near a five-week low against the euro after U.S. Federal Reserve Chairman Ben Bernanke said the central bank was ready to take "substantial" measures to shore up a slowing economy.
Bernanke acknowledged the economy faces increased risks and indicated the U.S. central bank is ready to cut interest rates aggressively to support growth. [ID:nN10198225]
The Fed already has cut rates a full percentage point since September.
The euro was steady at $1.4809 EUR=, having risen nearly 1 percent on Thursday to be back near a five-week peak of $1.4825 hit last week.
"The possibility of gold going to $900 is very real. We wouldn't expect the sort of increase to be sustained over the course of 2008, though," said David Moore, a commodity analyst at the Commonwealth Bank of Australia.
"As we move into the second half of 2008, we believe the environment will change. The U.S. dollar will start to strengthen against the euro, oil prices may be slightly lower. In that environment, we think the gold price could fall quite roughly." Crude oil CLc1 rose above $94 a barrel on Friday after falling nearly $2 the previous day, moving away from the record high of $100.09 hit on Jan. 3.
In the physical sector, gold bars were offered at discount of 40 U.S. cents to spot London prices in Tokyo from minus 25 cents last week due to heavy selling from retail investors <GOLD/ASIA1>.
"Our bullion shops are quite busy buying back gold from the general public. Too many people come to our shops to liquidate," said a dealer at a trading house in Tokyo.
The key gold futures contract for December 2008 delivery <0#JAU:> on the Tokyo Commodity Exchange TOCOM hit an intraday high of 3,182 yen per gram, its best level since March 1984. It ended 51 yen higher at 3,168 yen.
Other precious metals tracked gold's gains. Platinum XPT= hit a record high of $1,564/1,569 an ounce, up from $1,550/1,555 late in New York.
Silver XAG= rallied to a 27-year high at $16.29 an ounce before dipping to $16.24/16.29 an ounce, up from $16.12/16.17 late in New York.
Palladium XPD= was up to $376/380 an ounce from $373/376. Precious metals prices at 0838 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 894.90 2.40 +0.27 7.47 Spot Silver 16.24 0.12 +0.74 9.95 Spot Platinum 1564.00 14.00 +0.90 2.89 Spot Palladium 376.00 3.00 +0.80 2.17 TOCOM Gold 3168.00 51.00 +1.64 3.53 115896 TOCOM Platinum 5383.00 73.00 +1.37 0.82 35480 TOCOM Silver 574.20 21.70 +3.93 6.14 2733 TOCOM Palladium 1340.00 7.00 +0.53 -0.81 466 Euro/Dollar 1.4784 Dollar/Yen 109.08 TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce. (Editing by Ben Tan)