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COMEX gold up early on fund buying as Dow falls

NEW YORK, Sept 30 (Reuters) - COMEX gold advanced Monday morning on speculative buying, dragging up silver in its wake, as sagging global equity markets and a weaker U.S. dollar boosted safe-haven assets, traders said.

But as financial markets fret about corporate earnings, economic growth and the prospects of a U.S.-led war to disarm Iraq, a hefty fund long position was seen capping gold below its 2-1/2 year peak from June over $330 an ounce for now.

"We have some funds buying but we are sitting in a trading range, based on the dollar," said a COMEX floor source.

At 0943 EDT, December gold was up $3.70 at $324.70 an ounce, in a range of $321.20 to $325.10.

Despite fund buying after Friday's U.S. blue chip stocks sell-off, in which the Dow Jones 30 industrials fell 3.7 percent, gold remains hemmed in a tight range. "I don't see us going up through $325.50," said a trader who pegged support just below $320.

U.S. stocks opened sharply lower on worries about a fragile economic recovery, with the Dow down 211 points, or 2.8 percent, at 7,487 points.

Gold found support from a softer dollar, which makes bullion look more affordable to overseas investors in their own currencies.

Spot gold traded at $323.35/3.85, above its last New York close at $319.70/0.20. Monday's early London fix was at $322.40.

According to CFTC Commitments of Traders data issued Friday, COMEX is almost as overbought as it was during the rally to the June highs. The data showed the net noncommercial long position on COMEX swelled to 42,181 contracts from 25,186 in the week to Tuesday from the prior week.

"There may be some theoretical potential for some slight additional accumulation here, but it certainly does not outweigh the risk of heavy long liquidation," IFR Pegasus analyst Tim Evans said in a market note.

Evans said COMEX December gold faces resistance at $329.30 and $329.80, with support at last week's low of $319.80.

Technical analysts peg resistance in spot gold at $328, followed by June's high of $331.50. The October 1999 peak of $339 was seen as the longer term obstacle.

December silver climbed 6.0 cents to $4.565 an ounce, trading between $4.515 and $4.585.

The net fund long in silver rose to 22,206 contracts from 14,319 last week.

Spot silver was quoted at $4.54/56, up from $4.48/4.50 at the last New York close. Spot fixed at $4.5325 on Monday.

NYMEX benchmark January platinum rose $2 to $555 an ounce. Spot platinum was last at $560/565.

December palladium gained $1.90 to $317 an ounce. Spot palladium was indicated at $315.00/321.00.