* Palladium rises to highest in 14 months
* Gold upbeat on weak U.S. worker productivity data
* GRAPHIC-Plat/palladium ratio: http://link.reuters.com/fyg99v (Updates throughout)
By Zandi Shabalala and Jan Harvey
LONDON, Aug 10 (Reuters) - Palladium and platinum rose sharply on Wednesday as bets on lower prices were reversed in thin conditions after the metal broke above key chart levels, while gold rose as weak U.S. data weighed on the dollar.
Palladium surged overnight in Asia, hitting 14-month highs. Traders said a wave of short covering was likely triggered after the metal broke above $700 an ounce, and then above last week's 14-month peak of $723 an ounce.
Spot palladium XPD= was up 4.75 percent at $726.97 ounce at 1511 GMT, having risen as high as $746.10 an ounce in Asian trading hours. The move was likely to have been exacerbated by thin liquidity, analysts said.
Palladium, used in catalytic converters in cars, climbed nearly 20 percent last month in its biggest one-month rise in 8-1/2 years. That may mean investors who had bet on lower prices could be exposed to heavy losses.
"(Commodity) prices today are being supported by a combination of short covering and a weak dollar. Many people were a few positions short and you saw a lot of trying to cover that," Marex Spectron's head of precious metals David Govett said.
Gold XAU= , often perceived as a hedge against economic and financial risk, was 0.84 percent higher at $1,351.50 an ounce.
The metal rose after a report that U.S. worker productivity fell for a third straight quarter in the spring of this year, shrugging off earlier losses on Friday's jobs report. data pressured the dollar index, which gauges the U.S. currency against a basket of six major currencies, and U.S. Treasury yields but world stocks hit a one-year high. MKTS/GLOB FRX/
The unexpected drop in U.S. productivity may confirm the U.S. Federal Reserve's fears that the economy could slip into a period of slow growth, reducing the central bank's willingness to raise interest rates. banks look increasingly accommodative and no one seems to be going against that trend ... which supports all asset prices," said Morgan Stanley's head of European rates strategy Anton Heese.
Gold is highly sensitive to rising U.S. interest rates, which lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which the metal is priced.
U.S. gold GCcv1 futures for December delivery were up 0.84 percent at $1,357.9 an ounce.
Holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, fell for a second straight day on Tuesday. They slipped 0.12 percent to 972.62 tonnes from Monday. GOL/ETF
Among other precious metals, platinum XPT= was up 2.17 percent at $1,174.80 after rising to $1,191.70, its loftiest in over 17 months, while silver XAG= was up 1.98 percent at $20.22 an ounce.
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http://link.reuters.com/fyg99v
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