SINGAPORE, May 18 (Reuters) - Gold fell nearly 2 percent percent on Thursday as the U.S. dollar found support with expectations of more interest rate increases, raising fears the metal's bull run may be coming to an end.
Silver dropped as much as 2.6 percent, while platinum reversed early gains as fund buying on the Tokyo Commodity Exchange subsided and buyers turned aggressive sellers.
Spot gold hit a high of $692.10 in early Asian trade before dropping to $678.40 as selling in Japanese futures accelerated.
The metal was quoted at $690.90/691.70 late in New York.
Gold, used in jewellery and investment, saw volatile trade on Wednesday, when it rose nearly 4 percent to hit a high of $716 before a firming dollar prompted profit taking.
''A rebound in the dollar was seen to draw investors away from some commodities and undermined the hopes that Monday's sharp fall was just a pause in a record run for the asset class,'' said N M Rothschild in a daily report.
Gold and other commodities fell victim to speculative selling from record highs this week, falling to a one-week low of $674 before some physical demand helped it rebound.
Bullion has risen more than 30 percent since the start of the year and more than 60 percent from a year earlier. It hit a 26-year high of $730 an ounce last Friday.
''We see a break of $675 on the downside as significant and a possible trigger for more selling with $655, $620 and $600 the targets,'' said Rothschild.
''We feel the present volatility will persist and movements in the currency and energy markets will offer fresh leads going forward,'' it said.
The dollar pared some gains after rising on Wednesday on comments from European officials that the euro's rapid rise in the past month could stymie economic growth in the region.
Some dealers said the dollar was supported by the possibility the Federal Reserve could raise interest rates at its next meeting after data showed consumer prices had climbed in April at a faster pace than expected.
Rising interest rates tend to boost the dollar and diminish gold's allure as an alternative investment.
The dollar was around 110.62 yen having risen as high as 111.35 yen on Wednesday -- its biggest one-day gain since June.
The euro rose to around $1.2753 recovering after sliding 1.7 percent to around $1.27 the previous day.
Dealers are keen to hear what U.S. Treasury Secretary John Snow will tell the Senate Banking Committee when he testifies on international economic and exchange rate policies later in the day.
''I think we need to crack $675.50 before we talk about those big numbers below. My outlook is more range-trading of $670 to $730 until after the first half of the year if the going is good,'' said the dealer.
''For a complete sell-off, then every single one of those commodity and pension funds must change their mind and decide not to invest in gold anymore. That possibility seems a little remote,'' he said.
But some dealers said declines in Japanese futures could indicate a change in sentiment among some investors.
''Psychologically, sentiment has changed to bearish. The Japanese have turned sellers,'' said a dealer in Hong Kong.
Benchmark gold futures on the Tokyo Commodity Exchange, currently April 2007, fell by the 60-yen daily limit to 2,453 yen ($2.21) per gram. The contract rose as high as 35 yen per gram on Wednesday on bargain hunting.
Platinum rose to as high as $1,322 an ounce as Tokyo platinum futures rallied and hit a peak of 4,540 yen per gram, on the metal's bullish outlook.
But the key April 2007 contract later dropped 26 yen to 4,474 yen due to a lack of follow through and declines in gold.
Spot platinum was later quoted at $1,308/1,315 an ounce, hardly changed from New York levels, and off Wednesday's record high of $1,336.
Precious metal refiner Johnson Matthey said in a closely watched report on Monday platinum demand was expected to outpace supply in 2006.
Sister metal palladium hit a high of $375 an ounce before retreating to $365/382, down from $370/376 in the U.S. market.
Silver dropped to $13.07/13.17 an ounce from $13.29/13.44.
Precious Metals Prices by 0443 GMT* Last Net change Pct Move Gold 679.90 -9.60 -1.39 Platinum 1307.00 -1.00 -0.08 Palladium 365.00 -5.00 -1.35 Silver 12.97 -0.18 -1.37 Change so far in 2006 Metal Latest bid End prev year Pct Move Gold 679.90 517.20 +31.46 Platinum 1307.00 968.00 +35.02 Palladium 365.00 254.00 +43.70 Silver 12.97 8.81 +47.22 * The closing prices used to calculate the net change may differ from New York's last quoted prices.
($1=110.60 yen) REUTERS CS RS1129