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Written by: Staff

SINGAPORE, Aug 9 (Reuters) Gold fell more than 1 percent on Wednesday as the dollar rebounded on short-covering after the U.S.

Federal Reserve kept interest rates steady at 5.25 percent.

Other precious metals were mixed, with silver falling to its lowest level in a week at $11.89 an ounce.

Spot gold rose as high as $643.50 an ounce before dropping and hitting a low of $635.75. It hovered at $636.75/637.75 by 0403 GMT, down from $645.50/646.25 late in New York on Tuesday.

Gold was likely to find support around $635, with war in the Middle East and inflation worries amid high oil prices underpinning the precious metal, said Tobin Gorey, a commodities analyst at Commonwealth Bank of Australia in Sydney.

''There's definitely some support there. But if that $635 level goes, then we could see lower levels again. If we get through that, it could drop quite sharply,'' he said.

Benchmark gold futures <0#JAU:> on the Tokyo Commodity Exchange fell 23 yen per gram to 2,392 yen, lacking support from the spot market.

The dollar rebounded from two-month lows against major currencies after the Fed held rates steady after more than two years of credit tightening.

In its post-meeting statement, the Fed said the central bank's rate rises should help moderate inflation over time, even if risks of a pick-up in price pressures remain.

A Reuters poll found economists divided over whether the Fed had now finished raising rates.

Thirteen of 23 primary bond dealers believed the credit tightening campaign was over. Only four expected a rate increase at the central bank's next meeting in September.

The dollar rose to 115.64 yen from 115.30 yen late in New York. The euro fell to $1.2791 from around $1.2835.

''Although the holding of interest rates strengthened gold's appeal, the metal was unable to crack stiff resistance at $650,'' Investec Australia said in a daily report.

''General market sentiment remains bullish but the precious metal will need fresh catalysts to break through the $650 mark,'' it said.

Dealers said investors remained upbeat on gold because of firm oil prices and the four-week-old war between Israel and Hizbollah guerrillas, which has killed about 1,000 Lebanese and more than 100 Israelis.

But gold needed to rise above $650 and then $660 to maintain momentum. The metal has moved back and forth since rising to its highest in two weeks above $655 an ounce last Wednesday.

''(If) it breaks $650 again, it'll have to break through $660 to really convince (people) that it's not going down,'' said Gorey of Commonwealth Bank of Australia.

''You've got to get above there and stay above there to really convince people that things are turning around,'' he said.

Gold is way above lows hit in 1999 near $250 but also well below its 26-year peak of $730 touched in May. The metal spiked to an all-time high of $850 an ounce in 1980.

Platinum fell to $1,233/1,237 an ounce from $1,241/1,245 late in New York. Sister metal palladium rose to $317/322 from $316/321.

Silver dropped to $11.95/12.05 an ounce from $12.23/12.28 late in New York.

Precious Metals Prices by 0405 GMT* Metal Last Net change Pct Move Gold 636.75 -6.75 -1.05 Platinum 1233.00 -8.00 -0.64 Palladium 317.00 1.00 +0.32 Silver 11.95 -0.23 -1.89 Change so far in 2006 Metal Latest bid End prev year Pct Move Gold 636.75 517.20 +23.11 Platinum 1233.00 968.00 +27.38 Palladium 317.00 254.00 +24.80 Silver 11.95 8.81 +35.64 * The closing prices used to calculate the net change may differ from New York's last quoted prices.


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