Platinum jumped more than 11 percent to hit a record high in volatile trade on Tuesday as funds poured money into the metal, driven by talk about the launch of an exchange traded fund (ETF).

But the metal retreated about five percent from its peak on profit-taking. Spot platinum surged as high as $1,395 an ounce before falling to $1,320/1,340 by 1251 GMT, still well above $1,251/1,256 late in New York on Monday.

"It's being driven entirely by speculation that there is going to be the launch of an ETF," said Stephen Briggs, economist at SG Corporate and Investment Banking.

The platinum market was very small compared to gold and silver and had limited above-ground stocks, he said, adding an ETF would have a significant impact on the availability of the metal for genuine consumers.

"That's why the reaction is so dramatic."

ETFs, often backed by a physical commodity, enable investors to trade securities on an exchange and give investors a return based on commodities prices, without the need to trade futures or take physical delivery.

The metal, mainly used in jewellery and to clean car exhaust emissions, has jumped more than 30 percent in a month on the ETF talk, but there has been no confirmation so far.

A spokeswoman at U.S.-based Barclays Global Investors, which has launched gold and silver ETFs, told Reuters late on Monday the company had not filed any regulatory documents relating to a platinum trust and did not have any immediate plan to do so.

"A platinum ETF could be difficult to establish due to the lack of liquidity and likely resistance from producers and auto manufacturers," Numis Securities said in a market report.

PHYSICAL DEMAND MAY SLIP

Johnson Matthey, the world's top platinum distributor, said last week that supply and demand for the metal were likely to reach record levels in 2006, leaving the global market in deficit for the eighth consecutive year.

"Indeed we believe the longer term prospects for platinum demand have been damaged by this move," said John Reade, analyst at UBS Investment Bank.

"It will accelerate substitution efforts from industrial users of the metal and with Chinese jewelers unable or unwilling to buy platinum ahead of Chinese New Year, it will prompt a switch to other precious metals."

Shares in Lonmin, the world's third-biggest platinum miner, rose about four percent mainly on high metal prices.

"Platinum is back in uncharted territory and the combination of extreme illiquidity and aggressive speculation could push prices even further," said James Moore, precious metals analyst at TheBullionDesk.com.

Other precious metals drifted higher tracking platinum. Gold hit a high of $626 and was last at $624.90/625.90 an ounce, against $622.20/623.20 late in New York.

Silver increased to $12.88/12.95 from $12.74/12.81 an ounce, while palladium rose to $325/330 from $319/323.