Gold bounced and gained as much as $5 on Wednesday after falling to a one-week low the previous day, suggesting that fundamentals still favored the metal used as an alternative investment to bonds and currencies.

Platinum and silver also rebounded from lows after being hit by heavy fund selling while palladium held near New York levels.

Spot gold rose to $735.40/736.10 from $731.00/731.80 late in New York. It dropped to an intraday low of $724.35 on Tuesday as a stronger U.S. dollar prompted investors to take profits from this week's 28-year high of $747.65.

Profit taking after an aggressive rally is quite common, especially with gold having gone against gravity for one month in a row, said Pradeep Unni, analyst at Vision Commodities in Dubai.

But market willingness to buy on any retreat from the highs is still intact and as long as it stays, aggressive sell-offs will be deferred, said Unni, who pegged key support at $625.

The correction followed gold's 17 percent rally from an August low of around $641. Gold has gained on record high oil tensions in the Middle East, investor demand through exchange-traded funds and the Federal Reserve's move to cut interest rates.

Growth in gold ETFs continued, with gold used to back New York's StreetTRACKS Gold Shares, the most popular of its kind, rising to a record 578.03 tons according to the latest data.

I think the trend remains intact. I still think gold has potential to run up to $750, said Darren Heathcote of Investec Australia in Sydney.

Fundamentally, the reasons for it are still there. Oil prices are high, inflation is still necessarily a concern for central banks. We've had a setback with the subprime thing but it's still not gone away, he said.

Gold tumbled to a seven-week low of $641.10 in mid-August, when investors sold gold to raise cash to cover margin calls on losses ignited by a meltdown in the U.S. subprime mortgage market.

Oil prices rose and held above $80 a barrel on Wednesday as players bet a three-day profit-taking slump was overdone and looked ahead to U.S. data that is expected to show crude inventories resumed their recent decline last week.

Benchmark August 2008 gold futures on the Tokyo Commodity Exchange gained 5 yen per gram at 2,766 yen. It hit an intraday low of 2,746 yen -- its lowest level in nearly a week.

COMEX futures rose in Asia, with the most active December contract gaining $5.9 an ounce to $742.2 from the New York settlement. On Monday, it hit a 28-year high of $755.70.

In currencies, the euro edged up to $1.4169, having retreated from its all-time high of $1.4283 hit on electronic trading platform EBS earlier this week. The dollar rose to 115.79 yen.

Investors await the Institute for Supply Management's indicator on the service sector on Wednesday and the jobs report on Friday for more clues on the health of U.S. economy.

The dollar has sunk to successive all-time troughs versus the euro and a basket of major currencies, hurt by signs of a slowdown in the U.S. economy, a 50 basis point Fed rate cut last month and expectations of more easing to come.

I still see a bit of selling in the cash market because some people are nervous after the sharp drop, said a bullion dealer in Singapore.

But I would think gold still has a chance to go back to $640. I also heard jewelry sales in China are quite good despite the high prices, he said.

Spot platinum rose to $1,353/1,358 an ounce from $1,345.50/1,352.50 late in New York. Earlier this week it reached $1,391, within sight of last November's record high of $1,395 before profit taking kicked in.

Spot silver edged up to $13.40/13.45 an ounce from late New York's $13.32/13.37.

Spot palladium inched down to $347/352 an ounce from $347.50/351.50 an ounce.

Precious metals prices at 0521 GMT

Metal Last Change Pct chg YTD pct chg Turnover

Spot Gold 735.90 4.80 +0.66 15.76

Spot Silver 13.39 0.07 +0.53 4.20

Spot Platinum 1353.00 7.50 +0.56 19.52

Spot Palladium 347.00 -0.50 -0.14 4.52

TOCOM Gold 2767.00 6.00 +0.22 13.17 83101

TOCOM Platinum 4995.00 17.00 +0.34 17.42 44410

TOCOM Silver 502.40 2.10 +0.42 1.84 1260

TOCOM Palladium 1323.00 -2.00 -0.15 5.42 335

Euro/Dollar 1.4165

Dollar/Yen 115.78

TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce.

(Additional reporting by Risa Maeda in Tokyo)