Gold rises on inflation concerns, TOCOM up 1 pct

TOKYO, June 1 (Reuters) Gold rose on Friday after posting strong gains the previous day amid growing inflationary concerns and a rally in base metals, with strength in Japanese gold futures providing additional support.

Follow-up short-covering emerged in Asia to push cash prices to their highest in more than a week, but traders were careful about buying heavily following falls in the last week and after hitting technical resistance.

''Short-covering emerged after confirming solid buying interest below $650 this week,'' said Shuji Sugata, manager Mitsubishi Corp.

Futures and Securities Ltd.

''We've seen pretty big fund outflow from commodities since mid-May, but now some funds are coming back because the outlook looks brighter after yesterday's rebound.'' By 0343 GMT, cash gold was at $662.60/663.40 an ounce, up from $659.80/661.30 late in New York on Thursday. Gold climbed as high as $663.00 on Friday -- the highest since May 23.

The cash price faced some technical resistance around $662, which is the 100-day moving average level.

Tokyo traders said further short-covering could emerge after gold prices struggled in the last few weeks.

Spot gold dropped to a nine-week low of $651.30 on May 24.

''The mood is improving, but we have to see whether gold can break through the 100-day moving average decisively in the near term,'' Sugata said.

On Thursday, gold bounced back after a big drop in the dollar versus the euro, following news the U.S. economy grew at its slowest pace in more than four years.

Traders said the trend of the dollar continues to be the key driver of precious metals prices.

The Commerce Department downwardly revised its estimate for first quarter U.S. economic growth as businesses sold off inventories and U.S. imports of foreign goods grew.

Inflation readings in the GDP report were mostly in line with expectations, showing little revision at elevated rates.

Later, suggestions of rising inflation were confirmed in a report that also showed the U.S. Midwest business activity expanded in May at a much faster rate than forecast.

The benchmark April 2008 contract on the Tokyo Commodity Exchange was up more than 1 percent on short-covering.

Platinum rose to $1,283/1,288 an ounce from $1,278/1,283 in New York.

''Downside risk for platinum has eased especially after seeing it being supported at $1,250 this week,'' Sugata said.

''The technical trend looks brighter and it could soon test $1,300.'' Palladium edged up to $369/374 an ounce from $367/370.

Silver rose to $13.46/13.49 an ounce from $13.42/13/45 late in New York.

Precious metals prices at 0343 GMT Last Net Change Pct Move Turnover (lots) TOCOM Gold 2625.00 27.00 +1.04 31148 TOCOM Platinum 4973.00 78.00 +1.59 37970 TOCOM Silver 528.30 9.80 +1.89 2308 TOCOM Palladium 1473.00 14.00 +0.96 625 Spot Gold 662.60 Spot Platinum 1283.00 Spot Silver 13.46 Spot Palladium 369.00 Change so far in 2007 Metal Latest bid End prev year Pct Move TOCOM Gold 2625.00 2445.00 +7.36 TOCOM Platinum 4973.00 4254.00 +16.90 TOCOM Silver 528.30 493.30 +7.10 TOCOM Palladium 1473.00 1255.00 +17.37 Spot Gold 662.60 636.10 +4.17 Spot Platinum 1283.00 1132.00 +13.34 Spot Silver 13.46 12.85 +4.75 Spot Palladium 369.00 332.00 +11.14 Euro/Dollar $1.3449 Dollar/Yen 121.83 TOCOM prices in yen per gram, except for silver which is in yen per 10 grams, spot prices in $ per ounce.

REUTERS KR SSC1153