May 2 (Bloomberg) -- Gold traded near its lowest in four months, almost erasing this year's gains after the dollar's rally to a five-week high against euro eroded the precious metal's appeal as an alternative asset.

Bullion has plunged 18 percent from its March 17 record of $1,032.70 an ounce. The dollar headed for its first back-to-back weekly gains this year against the euro on speculation the Federal Reserve will halt its interest-rate cuts. The central bank lowered the benchmark rate to 2 percent on April 30.

``A sharp rise in the dollar'' yesterday triggered a sell- off in precious metals including gold, Darren Heathcote, head of trading at Investec Bank Ltd., said in a report today.

Gold fell below $850 an ounce yesterday for the first time since Jan. 2 to as low as $847.93 an ounce. Bullion for immediate delivery was little changed at $850.84 an ounce at 2:04 p.m. in Singapore. Silver was little changed at $16.18 an ounce after falling to a three-month low yesterday.

The dollar's rally ``has weighed'' on gold prices, analysts led by Kevin Norrish, commodity research director at Barclays Capital, said in a report yesterday. The Fed, which started to lower its target rate for overnight lending from 5.25 percent in September, cut it by a quarter-percentage point April 30.

``Our economists believe that this was the last Fed rate cut in this cycle,'' the Barclays report said.

The dollar was little changed at $1.5458 against the euro at 2:15 p.m. in Singapore, after touching $1.5431 yesterday, the highest in five weeks. The currency reached a record low of $1.6019 per euro on April 22.

Gold for June delivery was little changed at $852.80 an ounce in after-hours electronic trading on Comex at 2:17 p.m. Singapore time.

Gold for April 2009 delivery fell 1.4 percent to 2,891 yen a gram ($859 an ounce) at 3:18 p.m. local time on the Tokyo Commodity Exchange. Markets in China are closed for a holiday today.

To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net

Last Updated: May 2, 2008 02:32 EDT