NEW YORK, Nov 21 (Reuters) - Platinum turned south to end lower on Tuesday, as speculation buying and stronger physical demand failed to hold momentum after the metal opened sharply higher for the second day in a row.

Sources said that speculation based on the launch of a platinum exchange-traded fund has become over-inflated, and the lack of liquidity explained the more volatile market.

NYMEX January platinum futures had soared as much as 4 percent to a high of $1,285.00 in earlier trading. It dropped $15.20, or 1.23 percent, to close at $1,219.10. Spot platinum fetched $1,230.00/1,235.00 an ounce, lower than Monday's late quote of $1,251/1,256.

"The fundamentals are showing a long-term deficit when you look at production versus consumption. It's just that the upmove got exaggerated to a great extent, well beyond what it should have," said Ron Lawson, managing partner at LOGIC advisors.

There was also talk that increased over-the-counter options buying has extended support to platinum, whose prices have jumped about 18 percent this month, largely on ETF speculation.

ETFs, which are often backed by a physical commodity, enable investors to trade securities on an exchange and give investors a return based on commodities prices, without trading futures or taking physical delivery.
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Ralph D'Esposito, a floor trader at RJ Futures, said that the market has been bullish for the past two weeks after precious metals refiner Johnson Matthey reported robust worldwide demand, driven by higher use of autocatalysts.

Last week, Johnson Matthey forecast supply and demand for platinum to reach record levels in both 2006 and 2007, leaving the global market close to balance.

D'Esposito said there was fund buying, commission-house buying and light speculative demand for platinum. "But it's mostly stop-loss buying, I don't think this is fresh buying at all," he noted.

Other precious metals, meanwhile, ended higher. December gold at the COMEX division of the New York Mercantile Exchange climbed $6.60 to end at $628.70 an ounce. It traded between $621.30 and $629.00.

LOGIC advisor's Lawson attributed gold's gain to dollar weakness, firmer crude oil prices and a strengthened commodities index, referring to the Reuters/Jefferies CRB Index , which closed up 1.3 percent on Tuesday.

"The crude is up, (so) you may get a little bit of speculative buying on that basis," a floor trader said.

He said that the gold market was looking at Monday's low of $620.50 as an area of support, and $630 as the upper end of that range.

Spot gold bullion was last quoted at $627.90/628.90, up from $622.20/623.20 at Monday's close. Bullion dealers fixed London's afternoon spot reference price at $624.50.

COMEX December silver rose 34.5 cents to $13.085 an ounce. It traded between $12.93 and $13.10.

Spot silver was up at $13.04/13.11 from $12.74/12.81. Tuesday's fix was at $12.92.

December palladium climbed $5.30 to $328.35 an ounce. Spot palladium traded at $326/331 an ounce