Gold tumbled in late trading in London on Monday as investors locked in profits after the metal earlier hit a two-month high on conflict in the Middle East.

Gold fell while the dollar rose as the market reacted to a TV report that Israel's offensive in Lebanon could end in days, but the drop was exaggerated, a dealer said.

"It took gold off a touch but I think it's been overdone, it's gone a bit too far down. Oil fell as well, which added fuel to the fire."

"I think we'll see it edging back to $650."

Spot gold rose as high as $676.00 an ounce before falling more than four percent to $646.70/648.20 by 1444 GMT, against $666.30/667.80 late in New York on Friday. At Monday's high, gold was nine percent higher from a week ago.

Safe-haven gold buying had picked up in early trade as Israel bombarded Lebanon for a sixth day on Monday and dismissed as premature a proposal for an international stability force to help end the worst fighting across the Israeli-Lebanese border in more than 20 years.

"Most of it (Middle East tension) has been factored in. Of course if we see any escalation in the tension, then you can see some additional buying coming through," said Michael Widmer, analyst at Macquarie Bank.

Gold also came under pressure because of a rally in the dollar that rose one percent against European currencies and hit a three-month high versus the yen.

A stronger U.S. currency makes dollar-priced gold costlier for holders of other currencies and lower demand for the metal.

Mining shares were mixed.

Newmont Mining was down more than two percent by 1458 GMT, while Barrick Gold was up slightly.

Oil prices fell in volatile trading on Monday, but were not far from record highs.

In other precious metals, platinum fell to $1,237/1,242 an ounce from $1,249/1,255 late in New York, while palladium was at $318/323 an ounce, down from $323/328.

Silver fell to $11.00/11.10 an ounce from $11.46/11.56 in the U.S. market.