UPDATE 5-Gold slips to session lows as dollar firms

(Updates prices)

By Jan Harvey

LONDON, June 10, (Reuters) - Gold fell more than 2 percent
on Tuesday as the dollar rose after comments by U.S. Treasury
secretary Henry Paulson.

Paulson reiterated he would be prepared to intervene in
currency markets to underpin the dollar.

Gold slipped to a session low of $871.50 an ounce as the
dollar strengthened, against $894.00/896.00 late in New York on
Monday. At 1505 GMT, it was trading at $872.25/873.25.

"The dollar is the main reason," said Standard Chartered
analyst Dan Smith. "The correlation between the dollar and gold
remains strong and remains an important influence."

The dollar rose earlier on Tuesday on speculation an
increased focus on inflation by the Federal Reserve may lead to
a hike in U.S. interest rates later this year.

U.S. Federal Reserve chairman Ben Bernanke on Tuesday
reiterated concerns about the outlook for inflation.

Such a move could halt the dollar's fall, denting gold's
appeal as an alternative investment to the U.S. currency.

Weakness in the dollar, which also spurs buying of gold as a
currency hedge, was a primary factor in pushing the precious
metal to a new all-time high of $1,030.50 an ounce earlier this
year.

But the dollar has received a boost over the last week from
the Federal Reserve's increased focus on inflation, which has
raised expectations a rate hike may be forthcoming.

RISKS AND REWARDS

The dollar strengthened broadly earlier on Tuesday after a
warning from Fed Chairman Ben Bernanke on the risks of rising
prices.

If rates were raised to counter inflation, the dollar would
be likely to benefit, pressuring gold. However, uncertainty over
the outlook for the U.S. currency is still limiting losses.

Increased worries about inflation are likely to underpin
gold prices in the longer term, JP Morgan analyst Michael Jansen
said, as the precious metal is typically bought as a hedge
against rising prices.

"The broad dollar background is not very friendly but there
is a big focus on inflation which is intrinsically supportive of
gold," he said.

Spot platinum meanwhile slipped to $2,018.00/2,038.00 from
$2,037.50/2,057.50 late in New York, largely tracking gold and
other markets.

"In the absence of demand and supply news, platinum is
drifting along with financial market sentiment," said Standard
Bank in a note.

Among other precious metals, palladium edged up to
$423.00/431.00, while silver was trading at $16.71/16.77 against
$17.07/17.14.

(Editing by Christopher Johnson)