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LONDON, Mar 22 (Reuters) Silver surged to its highest in more than 22 years on Wednesday on strong speculative buying after U.S.

regulators took a big step towards finally approving the market's first exchange-traded fund (ETF).

The fund, to be backed by physical metal, has the potential to bring fresh investment to the market and soak up supply, dealers said.

''Of course you have had the good news about the silver ETF. It's not the final approval but is pretty close to it,'' said John Reade, precious metals analyst at UBS Investment Bank.

''If you get 50 million ounces of silver for the ETF, it will have a big impact on the market.'' Spot silver touched $10.59 per ounce, its highest since September 1983, and was at $10.54/10.57 by 1039 GMT (1609 IST), against $10.53/10.56 late in New York on Tuesday.

Silver, used in jewellery, electronics and photography, has risen nearly 20 per cent since the start of 2006 in anticipation of the fund launch.

Dealers said the market might have about 600 million ounces of silver available for delivery, including holdings by central banks, dealers and other banks.

But the figure excluded billions of ounces in the form of jewellery accumulated by consumers over generations but not available for immediate delivery.

The Securities and Exchange Commission said on Tuesday it approved rule changes that would allow the American Stock Exchange to list shares in Barclays Plc's iShares Silver Trust, which is designed to track the price of the metal.

Before the Silver Trust shares can begin trading, the commission would have to approve a registration statement allowing the shares to be publicly issued.

The fund would be backed by silver bullion held in vaults in London, with each share worth about 10 ounces of silver.

''With the scale of fund interest already expressed, I still believe the actual launch of the ETF will drive silver prices towards $12,'' James Moore, analyst at TheBullionDesk.com, said in a daily report.

GOLD IN RANGE Gold was firmer but speculation about U.S. interest rate rises kept it in a tight range.

Spot gold eased to $548.80/549.70 an ounce from $551.80/552.70 in the U.S. market.

Gold has repeatedly failed to breach a key resistance at $560, making it hard for the metal to test a 25-year high of $574.60 hit in early February.

The dollar gained as players felt more confident the Federal Reserve would keep pushing overnight interest rates beyond the expected increase at next week's policy meeting.

Rising interest rates tend to boost the dollar and put pressure on gold, an alternative investment.

Platinum rose on renewed fund buying in Japanese futures, while palladium traded below near-two-year highs.

Platinum rose to $1,039/1,043 an ounce from $1,035/1,039 in New York, while palladium increased to $319/322 an ounce from $314/319.

REUTERS SD VC1659