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SINGAPORE, July 17 (Reuters) Gold climbed to its highest level in eight weeks on Monday as tensions escalated in the Middle East and ignited safe-haven buying.

The metal also defied a firm dollar and found support from crude oil, which moved towards record highs above $78 a barrel because of worsening conflict between Israel and Hizbollah guerrillas.

Spot gold hit a high of $673.80 an ounce, its best level since May 23, before dipping to $673.30/674.80 an ounce by 0129 GMT on light profit-taking.

It was still higher than $666.30/667.80 late in New York on Friday but remained below a 26-year high of $730 an ounce hit in mid-May.

''It's tense at the moment and the market has refused to come down. But with the Japanese out of the market, I am not sure who's left to buy,'' said a dealer in Singapore.

''We've broken the $650 level and that's why the price is going up. You will now start to look at the $640 to $700 range,'' he said.

Israeli warplanes blasted east and north Lebanon on Monday killing 13 people after Hizbollah rockets struck deeper into Israel than ever before, with no diplomatic initiative in sight to end the fighting.

The crisis has escalated day by day with Hizbollah rocket attacks killing eight people in the Israeli city of Haifa on Sunday, the Islamist group's deadliest hit on Israel.

Gold is often bought as a hedge against inflation and for future sales in times of trouble.

Tokyo Commodity Market was closed on Monday for a public holiday. The benchmark June 2007 gold contract on TOCOM surged as much as 60 yen to 2,497 yen per gram on Friday, the highest since May 18. It ended 54 yen higher at 2,491 yen.

The U.S. dollar extended its gains against the yen and euro on Monday as conflict in the Middle East drove investors towards the perceived safety of the world's most liquid currency.

The dollar rose to a two-week high at 116.38 yen before retreating. The euro inched down to $1.2633.

In other precious metals, platinum rose to $1,252/1,258 an ounce from $1,249/1,255 late in New York.

Sister metal palladium gained to $329/335 an ounce from $323/328.

Silver inched up to $11.60/11.68 an ounce from $11.46/11.56 late in New York.

Precious Metals Prices by 0125 GMT* Metal Last Net change Pct Move Gold 673.40 9.70 +1.46 Platinum 1251.00 2.00 +0.16 Palladium 328.00 5.00 +1.55 Silver 11.61 0.18 +1.57 Change so far in 2006 Metal Latest bid End prev year Pct Move Gold 673.40 517.20 +30.20 Platinum 1251.00 968.00 +29.24 Palladium 328.00 254.00 +29.13 Silver 11.61 8.81 +31.78 * The closing prices used to calculate the net change may differ from New York's last quoted prices.

Reuters DKS VP0732