By Halia Pavliva Oct. 30 (Bloomberg) -- Platinum prices gained as the dollar fell, spurring demand for the precious metal as alternative investment. Palladium dropped. The dollar slid against a basket of six major currencies for the second straight day after the Federal Reserve reduced its benchmark interest rate to 1 percent yesterday. Commodities soared by a record yesterday on speculation that reductions in borrowing costs by central banks around the world will revive a slumping economy and boost demand for raw materials. ``The dollar will remain very much at the center of attention as participants gauge the longevity of the effects of yesterday's cut on its value,'' Jon Nadler, a senior analyst at Kitco Inc. in Montreal, said in a report. Platinum futures for January delivery jumped $14, or 1.7 percent, to $830.60 an ounce on the New York Mercantile Exchange. The price is up 3.5 percent this week. Palladium futures for December delivery fell 40 cents, or 0.2 percent, to $196.70 an ounce. The price still has jumped 13 percent this week. In two days, the dollar has dropped as much as 4.5 percent against the basket of currencies. ``We could see the weakness in the dollar prove to be relatively short-lived, as rate differentials may not alter all that much,' Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said in a report. The European Central Bank and central banks in the U.K. and Japan may reduce borrowing costs, he said. Platinum and palladium are used in jewelry and emission- control devices in cars. This year, the metals have dropped by almost half as auto sales plunged. GDP Shrinks U.S. gross domestic product contracted at a 0.3 percent pace in the third quarter, the biggest decline since 2001, Commerce Department data showed today. ``Platinum will probably languish with the global economy for some time, but is attractively priced for the longer term,'' John Reade, the head of metals strategy at UBS AG in London, said in a report. Platinum demand outpaced production by 480,000 ounces last year, according to Johnson Matthey Plc, the maker of a third of the world's auto catalysts. Analysts have estimated a 2008 deficit of 500,000 ounces as power shortages cut output in South Africa, the biggest producer. ``The markets are not generating any clear trading signals,'' Ralph Preston, a futures analyst at Heritage West Futures Inc in San Diego said in an e-mail. ``Prices are just bouncing around.'' To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.

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