Gold retreated from earlier highs on Friday as bargain hunting subsided amid nervousness caused by this week's sell-off triggered by the strength of the dollar and rising U.S. Treasury yields.

Tokyo gold futures prices closed higher reflecting a weaker yen, which hovered at a 4-½ year low against the dollar, but they drifted off from session highs in line with the cash price.

Some dealers said gold's prospect looked a bit brighter since it recovered from a three-month low of $642.90 hit on Wednesday, while others thought the precious metal could come under pressure again.

Spot gold was fetching $650.50/$652.00 an ounce at 0704 GMT, down from $651.20/$652.70 last quoted in New York and off Friday's peak of $653.20.

Gold is looking a little bit happier at these levels now. We might find we want to test $655 today, said Darren Heathcote of Investec Australia in Sydney.

But investors remained cautious, he said.

We are having a little bit of stability but I think it may take a little while longer for them to gain the confidence to build up their longs again, Heathcote said.

Some dealers said the dollar's underlying strength would continue to put pressure on gold.

Gold rebounded but considering that the euro is now under pressure against the dollar, I don't think gold can rise very strongly from here, said Tetsu Emori, chief strategist at Mitsui Bussan Futures Ltd.

He said there was strong buying interest when gold dips below $650. But technical sentiment will deteriorate should the spot price fall below $635 -- a low reached in March.

Gold's apparent inability to scythe the keenly awaited key resistances only hints of an impending sell off, said Pradeep Unni, an analyst at Vision Commodity Services in Dubai.

He was referring to a number of technical barriers which include $700 an ounce.

However, this wouldn't be an overnight event. Gold would continue to wobble around the $640 to $685 levels for quite a while before finally sliding.

On the Tokyo Commodity Exchange, the benchmark most-distant April gold contract closed up 4 yen per gram or 0.2 percent, at 2,602 yen after hitting a session peak of 2,612 yen, the highest since June 7.

In the currency market, the dollar was boosted by a climb in U.S. Treasury yields to a five-year high this week, while investors renewed their appetite for risk and sold the low-yielding yen in carry trades.

The dollar traded at 123.06/09 yen, up from 122.94/97 yen in late New York.

It climbed to 123.13 yen on Thursday, the highest since December 2002.

Benchmark April platinum futures contract closed unchanged at 5,005 yen a gram after reaching a one-week high of 5,017 yen.

Spot platinum was at $1,277/$1,282, down from New York levels of $1,280/$1,285 an ounce.

(Additional reporting by Chikafumi Hodo)

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