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Written by: Staff
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SINGAPORE, May 10 (Reuters) Gold hit a 25-year high of $700.70 an ounce on Wednesday as investors reacted to a weak dollar and tension over Iran's nuclear ambitions.

Platinum surged to a record $1,242 an ounce as fund buying in Japan propelled the most active April 2007 contract on the Tokyo Commodity Exchange to an all-time high of 4,365 yen per gram.

Spot gold was later quoted at $698.50/699.00 an ounce, down from $699.90/700.90 late in New York on Tuesday, when it had surged to $700.50 an ounce.

Benchmark gold futures on TOCOM rose by the daily 60-yen limit to 2,538 yen per gram on after the dollar-based spot price rose above the closely watched $700 an ounce.

Some dealers expected volatile trade ahead.

''We could be in a wide range today. I wouldn't be surprised if we have to look at support somewhere around $686,'' said Darren Heathcote, head of trading at N M Rothschild in Sydney.

''I think there's a potential of volatility. It looks like until we are going to London, we may all struggle to get over about $703,'' he said.

Gold, used for jewellery and as a store of wealth, has risen around 35 percent this year as investors diversified into precious metals because global tension, rising energy costs and uncertainty in the dollar's outlook.

A letter to U.S. President George W. Bush from Iranian President Mahmoud Ahmadinejad failed to provide a diplomatic breakthrough in the nuclear standoff.

It was the first such letter to the White House from Tehran since Washington broke off relations while Iran held U.S. hostages in 1980.

Market talk that economists had urged China to quadruple its gold reserves to 2,500 tonnes from the current 600 tonnes because its foreign exchange reserves had become the world's largest had also spurred the gold rally, particularly in New York.

But some dealers said it was unclear whether the central bank would be buying gold at current high prices.

China overtook Turkey as the world's third-largest gold consumer in 2005. It bought 241.4 tonnes of gold in 2005, compared with 224.1 in 2004. Investment demand rose 19.4 percent to 11.7 tonnes last year.

In the currency market, the dollar held near an eight-month low against the yen on Wednesday ahead of a Federal Reserve meeting that many in the market expect will signal an end to a two-year stretch of rising interest rates.

The dollar was at 111.07 yen -- not far from an eight-month low of 110.88 yen hit on Tuesday. The euro was little changed at $1.2755 just below the one-year high of $1.2788 struck earlier in the week.

Platinum rose to $1,241/1,246 from $1,235/1,240 late in New York.

Investors were betting on platinum ahead of London's Platinum Week, which starts on May 15. Johnson Matthey, the world's top distributor of the metal, will release its widely read report during the week on fundamentals and price trends.

Sister metal palladium eased to $388/393 an ounce from $389/394 late in New York.

Silver edged down to $14.35/14.42 from $14.44/14.54 in New York.

Precious Metals Prices by 0153 GMT* Gold 698.50 -1.00 -0.14 Platinum 1241.00 3.00 +0.24 Palladium 388.00 0.00 +0.00 Silver 14.35 -0.06 -0.42 Change so far in 2006 Metal Latest bid End prev year Pct Move Gold 698.50 517.20 +35.05 Platinum 1241.00 968.00 +28.20 Palladium 388.00 254.00 +52.76 Silver 14.35 8.81 +62.88 * The closing prices used to calculate the net change may differ from New York's last quoted prices.

REUTERS CS RN0913

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