SYDNEY, Feb 20 Gold traded in a narrow range on Tuesday as the U.S. dollar strengthened a

SYDNEY, Feb 20 (Reuters) Gold traded in a narrow range on Tuesday as the U.S. dollar strengthened and activity was slowed by the Lunar New Year holiday.

A return to active trading in the United States after a three-day weekend should lead to increased volatility, traders said.

''The markets have been very subdued and that's left gold with little price movement,'' said one trader.

At 0449 GMT spot gold was quoted at $671.70./672.40 an ounce versus $670.60/$671.30 late on Monday.

Gold's steady course follows Monday's surge to a seven-month high in step with a weakening dollar.

The dollar edged up against the yen on Tuesday, pulling away from a five-week low as investors doubted whether a potential interest-rate increase by the Bank of Japan would do much to help the beleaguered Japanese currency.

A similar scenario was being played out in Japan, where gold futures were little changed as activity slowed ahead of the central bank's decision on interest rates.

''There's just very little to trade on at the moment,'' a Tokyo broker said.

The benchmark most-distant December gold contract on the Tokyo Commodity Exchange finished the morning at 2,602 yen per gram, down 4 yen or about 0.2 percent.

Taiwan and China are closed for the entire week to mark the Year of the Pig, while Hong Kong and Singapore will be shut on Tuesday.

A hobbled oil price was also dulling gold's appeal by suggesting inflation was not a threat.

U.S. crude oil futures held on to the previous day's deep losses amid expectations for lower U.S. demand.

Gold tends to rise in step with oil, acting as a hedge against any subsequent weakness in the buying power of the dollar if inflation rises.

Silver was 2 cents higher at $14.00/14.05 an ounce.

Platinum slipped $3 to $1,213/1,218.

Palladium was $1 higher at $339/344.

REUTERS CS KN1102