By Pham-Duy Nguyen and Halia Pavliva

Jan. 28 (Bloomberg) -- Gold rose to a record $929.80 an ounce in New York as the dollar fell against the euro, enhancing the metal's appeal as an alternative investment. Platinum surged to the highest ever on South African supply concerns.

The dollar dropped as traders increased speculation that the Federal Reserve will cut the target lending rate by a half- percentage point this week to prevent the U.S. from heading into a recession. Gold reached the previous record of $924.30 on Jan. 25, three days after the Fed slashed its benchmark rate by 0.75 percentage point to 3.5 percent in an emergency move.

``The Fed seems to be suggesting that despite some of the price pressure, their concern is the financial system,'' said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. ``Gold is holding up as a flight-to-quality instrument.''

Gold futures for February delivery rose $16.40, or 1.8 percent, to $927.10 an ounce on the Comex division of the New York Mercantile Exchange. The metal surged 31 percent last year as consumer prices rose 4.1 percent, the most since 1990.

The dollar fell to the lowest against the euro in almost two weeks. Interest-rate futures show an 86 percent chance the Fed will lower borrowing costs to 3 percent on Jan. 30, compared with a 70 percent chance on Jan. 27.

``If we do see a 50 basis-point cut, gold will be very strong,'' said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. ``If the Fed only cuts 25 basis points, we could potentially see some profit-taking in gold.''

Gold reached a record for the eighth session this month. Investment demand in the StreetTracks Gold Trust, an exchange- traded fund backed by bullion, reached a record 653 metric tons on Jan. 14.

`Away From Stocks'

``There's still some allocation going away from stocks and into gold,'' Platt of Archer Financial said. ``Investment demand still seems to be overwhelming the market.''

Before today, gold had gained 8.7 percent this month, while the Standard & Poor's 500 Index tumbled 9.4 percent. Purchases of new homes in the U.S. fell 26 percent in 2007, the most since records began in 1963, Commerce Department data showed today.

The Fed began cutting borrowing costs on Sept. 18 as home sales slowed and losses in the subprime mortgage market mounted. Policy makers lowered the benchmark rate 1 percentage point last year, sending the dollar 9.5 percent lower against the euro.

The European Central Bank raised rates 0.5 percentage point to 4 percent in 2007 and signaled last week rates may stay steady to fight inflation.

Derivatives `Crisis'

``Gold investors are savoring the recent emergency Fed rate cut as it invokes all three `Horsemen:' global derivatives crisis on multiple levels, clumsy central bank intervention, and deliberate currency devaluations,'' John Hill, a Citigroup Inc. analyst, said in a report yesterday. ``We continue to favor gold and expect a test of $1,000 an ounce.''

More than half of the 28 analysts who participated in the London Bullion Market Association's annual survey forecast gold's high will exceed $1,000 this year. The survey showed gold would average $862 in 2008.

Goldman Sachs Group Inc. forecasts the Fed will reduce rates to 2.5 percent this year, and gold will average $870 an ounce.

Platinum futures for April delivery jumped $48.60, or 2.9 percent, to $1,728.70 an ounce on the Nymex. The price earlier reached a record $1,733.

Companies including Anglo Platinum Ltd. kept mines shut after power supplies were cut for a fourth day in South Africa, the world's largest platinum producer.

`Interruptions Inevitable'

``Interruptions are inevitable for the next two to four weeks, with production suspended at the country's underground mines,'' John Reade, head of metals strategy at UBS Ltd. in London, said in a report. UBS raised its one-and three-month forecast for platinum to $1,800 an ounce, from a Jan. 4 forecast of $1,600.

About 75 percent of the world's platinum supply is mined in South Africa, according to Anglo Platinum, the world's biggest producer of the metal. Platinum and palladium are used in jewelry and emissions-control systems in vehicles.

Palladium futures for March delivery rose $5.90, or 1.5 percent, to $391.35 an ounce. The metal rose 12 percent in 2007.

Silver futures for March delivery advanced 26 cents, or 1.6 percent, to $16.75 an ounce on the Comex. The price earlier reached $16.79, the highest since January 1981. The metal gained 15 percent last year.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net ; Halia Pavliva in New York at hpavliva@bloomberg.net .