Gold rebounded to trade higher on Thursday after hitting two-week lows, as the metal's allure as an alternative investment rose with a drop in the dollar.

Spot gold hit an intraday low of $720.70 an ounce before rising more than $12 to $733.20. It was quoted at $732.20/732.80 by 10:42 a.m. EDT (1442 GMT), against $729.70/730.50 late in New York on Wednesday.

Gold rebounded after U.S. data releases, Trichet comments and the fact that we held above $720. As there have been people looking to take profits, there have been those who are looking to get in on a dip, said Simon Weeks, director of precious metals at ScotiaMocatta.

We are expected to trade between $725 and $736 for now, but I think we would hold and work our way higher overall. If we could get a close on Friday above $740, then next week we would see another run at the highs.

The dollar fell, snapping a three-day rally, as dealers anticipated Friday's September U.S. payrolls data may not reflect enough strength to keep the Federal Reserve from cutting interest rates.

Dealers also noted comments by European Central Bank President Jean-Claude Trichet who said risks to economic growth remained to the downside amid market uncertainty.

The market showed little reaction to news that South Africa's mining minister had ordered the Elandsrand mine owned by Harmony Gold (HARJ.J: Quote, Profile, Research) to close for six weeks after an accident that stranded miners underground.

Around 1,250 miners remained trapped more than a mile underground in the mine on Thursday after an all-night rescue mission. Analysts said production loss at the mine would be just a few tones.

In the medium to long term, we are bullish on gold and expect the metal to possibly even set new highs above $750 as safe-haven buying and strong investor interest continue to put upward pressure on prices, Investec Australia said in a note.

Gold had fallen more than 3 percent since spiking to $747.65 on Monday, the highest since January 1980, but bullion investors remained upbeat due to firm oil, tensions in the Middle East, demand through exchange-traded funds and the U.S. Federal Reserve's recent surprise move to cut interest rates.

In other bullion markets, the most active August 2008 gold contract in Tokyo ended 16 yen per gram lower at 2,748 yen. It had reached a 22-year high of 2,804 yen on Tuesday.

COMEX futures rose, with the most active December contract up $0.7 an ounce at $736.4 from the New York settlement. On Monday it hit a 28-year high of $755.70.

In physical markets, gold imports by India, the world's largest consumer, were expected to hit a record above 800 tones this year on rising incomes from a booming economy and stronger local currency.