* Investors buy into gold after 3.5 pct dip
* Market awaits Congress votes on $700 billion rescue plan
* Platinum gives up gains, falls back towards $1,000/oz
(Recasts, updates, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Oct 1 (Reuters) - Gold rose in bargain hunting on
Wednesday after a sharp dip in prices as financial market
turmoil boosted its appeal and physical demand was strong.
Traders awaited a Senate vote on a $700 billion bailout of
Wall Street, which is expected to give fresh direction to trade.
Spot gold <XAU=> was quoted at $880.90/882.90 at 1411 GMT,
up from $869.95 late in New York on Tuesday.
"Yesterday's reaction in gold was overdone," said
Commerzbank analyst Eugen Weinberg. "We have really only taken a
couple of points back from the fall yesterday."
"Physical demand is so strong that it is surprising that
gold is still holding below $900 an ounce," he said. "One of the
things keeping it there is the stronger dollar."
The U.S. currency rose against the euro and the yen as
investors awaited the outcome of the Senate's vote later in the
session. []
Gold is benefiting from ongoing uncertainty over the outlook
for the financial sector, rallying to a two-month high of $920
an ounce earlier in the week after Washington initially rejected
the planned bailout.
However, prices eased as gold was caught up in a commodities
liquidation the following session.
Simon Weeks, head of precious metals at the Bank of Nova
Scotia, said while gold has recovered, its progress has been
lacklustre given the strength of ETF buying and demand for safer
assets.
"We are not going to get any clear direction until Congress
has finally passed (the U.S. rescue plan), assuming it does," he
said. "At the moment, gold is still vulnerable to headline news
items."
Traders are eyeing a U.S. Senate vote on Wednesday evening
on a revamped version of the $700 billion rescue package
proposed for Wall Street. []
If the package passes the Senate, it will put pressure on
the other branch of Congress, the House of Representatives, to
approve the project when it meets on Thursday.
"The fate of the Paulson rescue package remains the main
driver of commodity prices for the time being," said Dresdner
Kleinwort.
"Volatility in the metals markets might remain high until
the package has been approved by both houses of the U.S.
Congress."
Demand for bullion-backed exchange-traded funds is strong as
investors seek out gold as a haven from turmoil in other
markets.
The world's largest gold-backed ETF, the SPDR Gold Trust
<GLD>, said its holdings rose to a record 755.26 tonnes on
Tuesday, and are up 23 percent since Lehman Brothers filed for
bankruptcy protection on Sept 15. []
Among other precious metals, silver <XAG=> tracked gold
higher, rising to $12.45/12.52 an ounce from $12.02 late in New
York on Tuesday. The metal is also benefitting from strong ETF
demand.
Spot platinum <XPT=> gave up early 3 percent gains to fall
back towards $1,000 an ounce, the level at which it traded late
in New York on Tuesday. The metal slipped to its lowest level
since February 2006 in that session.
It was later trading at $1,004.50/1,024.50.
"Concerns about global economic growth continue, and thus a
slowdown in vehicle sales has weighed upon platinum," said
Barclays Capital in a note.
Its sister metal palladium <XPD=> climbed to $205.50/213.50
an ounce from $194.50.
(Reporting by Jan Harvey; editing by Michael Roddy)
