Palladium rose close to an 18-month high in Asia on Wednesday, spurred by hopes new technology will boost its usage but concerns about oversupply remain.
The metal touched $320 an ounce, its highest level since October 10, 2002, on renewed Japanese buying before easing slightly to $319/324 an ounce.
That compared with $310/315 an ounce last quoted in New York.
Belgian metals group Umicore Sa said on Friday it had developed technology that allowed the metal to be used instead of higher-priced platinum in diesel emission control systems.
Some dealers said speculators could send the market to around $350 an ounce, a level seen in August 2002, however demand fundamentals remained weak.
Both palladium and platinum are used in auto catalytic converters to clean exhaust fumes. In Tokyo, the benchmark February palladium futures contract rose 43 yen per gram to 1,118 yen.
"Palladium can reach $350 within a month on condition the Russian government doesn't enter the market. That's the most important thing," said Yukuji Sonoda, a precious metals analyst at Daiichi Commodities in Tokyo.
Dealers said massive palladium inventories in the world's largest producer, Russia, would limit the upside. Palladium hit a six-year low of $140 an ounce last April well below its 2001 record price of over $1,000.
Sister metal platinum rebounded to $887/892 an ounce from $880/885 an ounce in New York, suggesting investors remain bullish on the precious metal due to supply concerns and strong automobile production.
"The basic tone is very strong, so it will climb back to $900. The biggest problem for palladium is when Russia is going to sell," said Sonoda.
In other precious metals, gold was waiting for signs of weakness in the US dollar against rival currencies as it aimed to breach the $424 an ounce resistance.
The upside target was pegged at $430 an ounce, a level last seen a week ago. Spot gold was trading at $419.90/420.40, versus $418.00/418.50 last quoted in New York on Tuesday.
In Tokyo, the benchmark February 2005 gold contract on the yen-based Tokyo Commodity Exchange (TOCOM) rose three yen per gram to 1,428 yen.
"I don't see fresh physical demand because prices have firmed up a bit. I guess, the market is watching the dollar moves to get some idea about future direction," said one dealer in Hong Kong.
The dollar fell slightly against the yen but was firm against other major currencies. Silver inched up to $8.26/8.28 an ounce from $8.19/8.21 last quoted in New York.