* Cyprus bailout proposal weakens equities market

* Coming up: Cyprus parliament vote on bailout

(Updates throughout, changes dateline from SINGAPORE)

By Clara Denina

LONDON, March 18 (Reuters) - Gold rose above $1,600 for the first time in more than two weeks on Monday as a radical bailout package for Cyprus threatened to trigger fresh turmoil in the euro zone, sending some investors towards the relative safety of gold.

The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but required the country's savers to pay up to 10 percent on their deposits, shaking confidence in banks across the continent. ID:nL6N0C720W

"With what is going on in Cyprus right now, investors are looking for some hedges and gold is benefiting from that, but it is questionable how long it will last," Credit Suisse commodity analyst Karim Cherif said.

"We keep a neutral view at the moment ...if the situation in Cyprus continues the way it is we could see some positive trading sessions but fundamentals are not as strong and we haven't seen a strong return of ETFs investment yet."

Spot gold XAU= rose to a 2-1/2-week high of $1,608.30 an ounce earlier and was last seen at $1,601.60 at 1104 GMT, up 0.6 percent.

U.S. gold futures GCcv1 for April delivery also hit a 2-1/2-week high, at $1,607.60 an ounce. It later stood at $1,603.80.

Gold's safe-haven appeal had tailed off dramatically in the past few months - with prices losing 3.2 percent since the start of the year - as investors grew more confident of economic recovery and moved towards assets perceived as higher risk like equities.

A series of positive economic data out of the United States and China and a stabilisation in the euro zone also raised speculation that main central banks could turn off liquidity taps and stop pumping cash into the economies.

Less accommodative monetary policies would hurt gold, because higher interest rates encourage investors to take money out of non-interest-bearing assets.

In wider markets, the euro EUR= was flat against the dollar, having dropped as low as $1.2882 in the Asian session, while European shares dropped from previous week's highs.

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GRAPHIC: Spot gold 24-hour technical outlook

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GRAPHIC: Correlation between gold and Wall Street

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Investors will closely watch a parliament vote on the measure in Cyprus later on Monday.

The next macro event is a U.S. Federal Reserve policy meeting on Tuesday and Wednesday, which is expected to give clues on the central bank's attitude towards aggressive monetary stimulus. Economists expected the Fed to keep buying bonds for the rest of the year to aid the still frail economic recovery. FED/FOCUS

SPECULATIVE INTEREST RISES, ETFS DOWN

Speculators raised net long positions in U.S. gold in the week to March 12 from a more than five-year low of 39,631 contracts to 43,195 contracts, but also increased short bets on gold, data from U.S. Commodity Futures Trading Commission showed. 0#3CFTC088691

But interest in exchange-traded gold funds remained lukewarm on Friday. Holdings of SPDR Gold Trust GLD , the world's biggest gold ETF, resumed the decline after a two-day pause, down 3.311 tonnes to 1,232.996 tonnes, the lowest since October 2011.

Spot silver XAG= rose 0.3 percent to $28.74 an ounce.

Platinum XPT= was down 1 percent at $1,570.74. The metal has returned to trade at a discount to gold on worries over auto demand growth in Europe, which mostly uses platinum loadings in auto catalysts to clean up exhaust emissions. Palladium XPD= fell 1.6 percent to $755.47.

"PGMs are challenged by the aggressive extension in positioning and the current risk-off mood also contributes to these difficulties," broker UBS said in a note.

"Some consolidation has already taken place since net longs hit record highs, but some more is needed in the short term, especially if concerns in Europe intensify."

(Additional reporting by Rujun Shen in Singapore; editing by Veronica Brown and Keiron Henderson)

((clara.denina@thomsonreuters.com)(+44-0207-5429-420)(Reuters Messaging: clara.denina.thomsonreuters.com@reuters.net))

Keywords: MARKETS PRECIOUS/