Gold advanced above $650 an ounce on Monday, aided by strong oil prices, violence in the Middle East and a softer dollar on the view that another U.S. interest rate rise is unlikely this week.

Market players said trading was cautious ahead of the U.S. Federal Open Market Committee's rate-setting meeting on Tuesday. Lower rates tend to hurt the dollar and lift gold's allure as an alternative investment.

Gold rose as high as $651.00 an ounce before easing to $649.00/649.65 by 1423 GMT, up from $644.00/$645.50 late in New York on Friday.

"Overall, the picture is still quite good (for gold). The Federal Reserve has got its meeting this week and the consensus is more or less for constant interest rates," said Michael Widmer, analyst at Macquarie Bank.

"It's becoming very difficult for the dollar to stay strong. The Middle East is still an issue," he added.

The dollar flirted with a two-month low against a basket of currencies as investors positioned for an expected pause by the Federal Reserve in its two-year campaign of interest rate hikes.

"We believe that a weaker dollar will be one catalyst for higher precious metals prices over the next twelve months," said John Reade, precious metals analyst at UBS Investment Bank.

The metal also got support from oil prices, which surged above $77 a barrel as BP began shutting an Alaskan field that pumps 8 percent of U.S. crude and anxiety over the Middle East, supplier of almost a third of the world's oil, ran high.

Lebanon's prime minister, choking back tears, demanded a "quick and decisive ceasefire" on Monday after an Israeli air raid that he said killed more than 40 civilians sheltering from fighting in a southern village.

As diplomatic efforts to end the 27-day-old war between Israel and Hizbollah guerrillas stalled, air raids elsewhere in Lebanon killed at least 19 people.

VOLATILE PRICES HELP MINERS

Dealers said gold was expected to trade in a broad range in the short term, but might return towards a 26-year high of $730, recorded in May, in the medium term.

Choppy prices have helped bullion exchanges to attract more business while mining companies gained from high prices.

Volatile gold prices lifted trade on Dubai's fledgling gold futures exchange to more than 100,000 contracts worth $2.2 billion in May and June, the exchange's latest figures showed.

But Dubai's gold imports fell 21 percent in the second quarter to 127,914 kg (282,000 lb) against the same period last year, while exports rose 32 percent to 75,372 kg, the Gulf emirate's commodities centre said.

Net profits at African gold miner Randgold Resources almost doubled in the second quarter of the year, with results buoyed by high prices and a new mine in Mali.

World number three gold miner, AngloGold Ashanti, said it was leaving an increasing amount of its output unhedged to take advantage of soaring gold prices.

Newmont Mining Corp., the world's second largest gold producer, said it saw prices between $600 and $650 for the rest of 2006 before rising in 2007.

In other metals, platinum was at $1,247/$1,253 an ounce, compared with $1,242/$1,246 in the U.S. market, while palladium fell to $321/$326 an ounce from $322/$327. Silver rose to $12.40/$12.45 an ounce from $12.31/$12.41.