Platinum drops to 6-1/2-year low on Volkswagen scandal

By Clara Denina

LONDON (Reuters) - Platinum slid to a fresh 6-1/2-year low on Wednesday on fears about reduced demand from the auto sector, where it is used in diesel catalysts to clean up exhaust emissions.

The metal has been hurt by news of Volkswagen AG's falsification of U.S. vehicle emission tests as investors believed it could affect demand for diesel cars.

It fell to its lowest since January 2009 at $925.30 an ounce, before recouping some losses to trade up 0.3 percent at $937.20 by 0918 GMT.

"I would say at this point that the growth story, if there was a growth story for diesel cars in the US, is dead for now, which is something that takes away some potential upside for platinum demand," Julius Baer analyst Carsten Menke said.

Gold steadied, following two days of losses, as weak Chinese factory data soured investor appetite for risk

Gold rose 0.2 percent to $1,126.70 an ounce, after losing 1.3 percent over the past two days on renewed expectations that the Federal Reserve will raise U.S. interest rates for the first time in nearly a decade by the end of the year.

"There is some typical risk-off trade in gold...but it seems that investors are still very much reluctant to add safe-havens to the portfolios," Menke said.

Bullion had come under pressure earlier in the session as the dollar jumped to its highest in nearly three weeks before giving back some gains.

European shares rebounded from a lower start, although remaining volatile due to a fall in Asian stocks after a private survey showed activity in China's factory sector unexpectedly shrank to a 6-1/2-year low in September.

Gold's outlook, however, continues to be clouded by a looming U.S. interest rate hike. The Fed stood pat on interest rates last week but the U.S. central bank has also said it would move to increase rates later this year.

Atlanta Fed President Dennis Lockhart said on Monday that last week's decision was largely a "risk management" exercise, and he still expects an increase this year. St. Louis Fed President James Bullard said the central bank could lift rates at its October meeting.

Higher rates would dent demand for non-interest-paying gold, while boosting the dollar.

Inflows into SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, supported prices on Wednesday. The fund's holdings rose 0.18 percent to 675.80 tonnes on Tuesday, the first inflow in almost a month.

Silver rose 0.4 percent to $14.78 an ounce and palladium was up 2.3 percent at $619.25.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy)