SINGAPORE (Reuters) - Gold reversed early losses and rose more than 2 percent to above $700 an ounce on Wednesday as Japanese futures rebounded after falling by the 60-yen daily limit the previous day.

Other precious metals also gained, with platinum boosted by record-high platinum futures on the Tokyo Commodity Exchange.

Spot gold hit a low of $685.80 an ounce before gradually regaining $700 and hit a high of $708.40 - still below last week's 26-year high of $730 an ounce.

Gold was last quoted at $690.40 in New York on Tuesday, when it had risen more than $7 an ounce after a decline in the dollar triggered buying.

"In fact, people are talking about strategic positioning, which is basically some selling. But I guess the market follows Tokyo and there's a buy-up there," said a dealer in Singapore.

"There's also some demand on the physical side, such as from Thailand," said the dealer, referring to one of Southeast Asia's main consumers.

Benchmark gold futures on the Tokyo Commodity Exchange, currently April 2007, rose as high as 35 yen per gram to 2,551 yen ($23.22) before ending at 2,513 yen, down 3 yen from Tuesday's close.

Dealers said bargain hunters, who have been waiting for the price to drop, as well as some physical buyers were in the market to buy gold, used in jewelry and as an investment.

"In the physical market, a lot of people have been waiting for the dip, particularly for gold bargain hunters ... physical buyers who would buy gold and hold for a long period of time," said Itsuo Toshima, Japan and South Korea regional director of the World Gold Council.

Dealers expected a volatile trade ahead, with movements of the dollar against other currencies likely to offer leads.

The dollar hovered within sight of an eight-month low against the yen after weak housing and inflation figures suggested the two-year run of rising U.S. interest rates is nearly over.

The dollar was down at 109.15 yen moving back towards an eight-month low of 109.31 yen struck at the end of last week.

The euro was up a tad at $1.2890 after climbing 0.5 percent in the previous session.

Platinum rose to $1,320 an ounce from $1,299 late in New York.

Benchmark most distant April platinum futures contract in TOCOM finished at 4,500 yen, up 105 yen. The contract rose as high as 4,505 yen, up 2.5 percent from the previous day's close of 4,395 yen.

"People want to buy in the current environment," said a Tokyo-based analyst, referring to the metal's bullish tone.

Precious metal refiner Johnson Matthey said in a closely watched report released on Monday the metal is set to stay in deficit for the eighth year in a row in 2006, boosting market sentiment.

Traders said the key contract could be in for further gains since it had topped the key resistance level of 4,500 yen.

Sister metal palladium rose to $381.50 an ounce from $371.50.

Silver edged up to $13.87 an ounce from $13.64.

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