(New story, updates throughout, previous Tokyo)
LONDON, May 30 (Reuters) - Gold dipped in Europe on Friday, with currency firmly leading trade as the dollar cam back after the euro's recent searing run to record highs.
But the metal remained well supported above $365 an ounce.
"Divining the gold market at the moment requires a view of the FX market rather than gold specific issues," John Reade of UBS Warburg said in a daily report.
"Gold remains in the hands of the FX market and the extreme volatility of the euro/dollar is causing headaches to gold traders as well as their FX colleagues," he added.
Spot gold was at $366.10/366.90 at 1016 GMT, having risen to within a whisker of $370 overnight as the euro ran towards its highs against the dollar, making gold cheaper for holders of currencies other than the greenback.
Bullion was last quoted at $368.70/369.45 in New York.
Dealers said gold's sharp spike higher overnight was driven by funds, with no evidence of their presence in the market so far on Friday.
"I think this is a natural pullback from yesterday's rally and I don't think it's any more than the ebb and flow of normal trading," said Peter Hillyard, head of European metals sales at ANZ Investment Bank.
"If you take a slightly longer view, the market believes that the ultimate direction of this market is higher. That isn't to say that it's going to go there in one horny straight move, but that essentially we're going to work higher," he added.
CHOPPY WATERS
Technical analysts expected gold to steer a choppy course in coming sessions, with movements largely hinged on currency developments.
Gold has moved erratically this week, with movements in the foreign exchange market sending bullion as high as $375 -- a 15-week high -- before profit-taking dragged it as low as $358.50.
"Expect the volatility to continue over the coming sessions," Scotia Mocatta said in a daily report, placing support at $361.00 to $359.00.
On the upside, a break of (Thursday's) high of $369.70/370.20 would suggest a re-test of $373.00 to $374.00, Scotia Mocatta said.
Volatility could also be heightened by the absence of several market participants next week for the London Bullion Market Association conference in Lisbon.
Gold typically thrives in times of uncertainty, feeding off a weaker dollar, worries over the health of the global economy and the destabilising effects of conflict in the Middle East.
The euro was quoted at $1.1835/38, compared with $1.1900/04 in late U.S. trade.
Silver dipped to $4.55/57 an ounce from $4.56/58 last quoted in New York.
Platinum regained some composure after diving by more than $30 on Thursday on stop-loss selling by Japanese investors and hedge funds.
It was quoted at $641/646 an ounce, against New York's last $638/643.
Palladium nudged up slightly to $180.00/186.00 from $178.00/185.00.