(Reuters) - Gold rallied to fresh record highs in Europe on Thursday as the dollar slid to its lowest this year versus a basket of major currencies, boosting interest in the metal as a haven from currency market volatility.

Gold retreated as the dollar index lifted from lows, but remains firmly underpinned, analysts said.

Spot gold hit a high of $1,387.10 an ounce and was bid at $1,377.50 an ounce at 1435 GMT, against $1,370.90 late on Wednesday. U.S. gold futures for December delivery were up $7.90 at $1,378.40, having peaked at $1,388.10 an ounce.

Gold prices have risen more than 25 percent this year as the dollar has been battered by expectations that U.S. policymakers will pursue an increasingly loose monetary policy involving quantitative easing to stimulate economic growth.

Standard Chartered analyst Daniel Smith said dollar weakness had been a major driver of the recent run higher in gold.

"In the last day or so we've seen evidence that we are going to see more weakness in the dollar in the next week or two," he said. "We are breaking down through some key levels."

Silver prices also rode higher on gold's coat-tails, reaching a fresh 30-year high at $24.90 an ounce before easing back to $24.53 an ounce against $23.89.

The dollar index -- which measures the dollar's performance against a basket of six major currencies -- hit the year's low on Thursday after Singapore widened its currency's trading band, piling more pressure onto the struggling greenback. <FRX/>

Investors are continuing to dump the U.S. currency on expectations the Federal Reserve will start further money-printing next month, and as tensions rise over the increasing volatility of the foreign exchange markets.

"Although QE expectations are an important element of the rally, currency disputes are also a prime driver of gold prices," said HSBC's Jim Steel in a note. "The recent IMF meeting saw the public airing of sharp disagreements between China and the United States on currency policy."

"The EU has seconded U.S. calls for China to liberalize its exchange rate polices," he added. "Additionally, emerging market nations including Brazil, India, and Thailand have imposed taxes on capital inflows or sought to limit inflows, in an effort to stem currency appreciation."

While these tensions persist, gold is likely to be well supported, he said.

SPDR GOLD ETF SEES OUTFLOW

Swiss bank UBS raised its one-month forecast for gold to $1,425 an ounce from $1,300, saying it sees limited downside potential for gold ahead of the Fed's November meeting, and its three-month price view to $1,400 an ounce from $1,300.

"Gold's climb is not showing any signs of slowing," it said. "$1,400 is now being eyed as a short-term target, which seems easily achievable as long as the dollar continues to fall across the board