Gold rose on Monday and stayed within sight of a 16-month high of $717 an ounce struck last week with expectations running high for the U.S. Federal Reserve to cut interest rates.

The Fed is widely expected to trim its benchmark interest rate by at least 25 basis points on Tuesday to help cushion the economy from the impact of the credit squeeze and housing slump. Lower interest rates boost gold's safe-haven appeal. Platinum and palladium rebounded from early lows to track gains in bullion, but some gold jewelers in Asia refrained from buying ahead of the Fed's policy meeting, said dealers.

Spot gold rose to $710.30/711.10 an ounce from $707.30/708.10 an ounce late in New York on Friday on fund and stop-loss buying as the euro held within striking distance of last week's all-time highs around $1.3927.

My gut feeling is when the dust really starts to settle in this subprime issue, gold will be even more attractive as an asset which is not really subject to a credit crunch, said Darren Heathcote of Investec Australia in Sydney.

It's holding on to its safe haven status for the time being. Physical buying is still relatively strong, he said.

Gold, used in jewellery and as an investment tool, has rebounded around 10 percent from a seven-week low reached in mid-August. It hit a low of $641.10, when investors sold gold to raise cash to cover margin calls on losses triggered by a meltdown in the U.S. subprime mortgage market.

I guess $720 is definitely the topside. If we want to see the price hitting $800, which is possible, we need to clear the psychological levels of $720 and $730, said a dealer in Singapore.

Gold hit an all-time high of $850 an ounce, fixed in London on January 21, 1980.

Some dealers said Friday's rally was also ignited by news Britain's financial authorities stepped in to rescue mortgage lender Northern Rock as the group fell victim to the sharp rise in borrowing costs between banks.

The market has seen bits and pieces of demand, although buying interest seems to be subsiding at around $710. It looks like jewelers are reluctant to do anything right now, said a dealer in Hong Kong.

Gold will probably move in a range of $708 to $712 today. I am a bit bullish but I think there's a big pressure on the upside, he said.

The euro was steady at $1.3878 on Monday but hovered near last week's all-time highs. Measured against a basket of major currencies, the dollar touched a 15-year low of 79.30 last week before bouncing modestly to 79.72.

Former Fed Chairman Alan Greenspan said in an interview published on Monday the Fed would have to raise interest rates to double-digit levels in coming years to thwart inflation.

But double-digit rates, which have not been seen since the 1980s, would not be a long-term fixture, Greenspan said in an interview with USA Today conducted on Friday.

Japanese financial markets were closed on Monday for a public holiday. Benchmark August 2008 gold futures on the Tokyo Commodity Exchange ended unchanged at 2,634 yen per gram on Friday.

Platinum hit intraday low of $1,262 an ounce, its lowest since August 31 in the absence of Japanese players. It later rebounded to $1,299/1,304 an ounce, higher than $1,297/1,302 late in New York.

Japan's Daihatsu Motor Co. Ltd. (7262.T: Quote, Profile, Research) said on Friday it had developed a technology to make fuel cells without platinum, the precious metal used in the electrolyte process in existing hydrogen-based fuel cells.

Palladium fell to $329/333 an ounce from $330/334 late in New York. It fell as low as $326 on Monday, its lowest level in nearly three weeks.