Palladium prices hit a two-year high on Monday but crude oil faltered after making early gains while gold moved lower as the dollar strengthened.

Palladium reached $477 a troy ounce before easing back to $467, down 1.7 per cent.

Palladium prices have risen by a quarter since November as government sponsored car scrappage schemes have supported demand for the metal which is widely used in vehicle catalysts.

Hedge funds have been increasing their bets on palladium prices rising further with the speculative net long position standing at a record high.

The launch of palladium and platinum exchange traded funds in the US has also attracted fresh investor inflows for both metals.

Michael Jansen at JP Morgan said that investments in ETFs "crowded out" the metal available to other buyers.

"We continue to see the combination of a structurally robust market in terms of suplpy and demand factors, coupled with physical ownership (via ETFs) by investors as bullish for prices," said Mr Jansen.

Platinum rose 1 per cent to $1,589 a troy ounce amid concerns that production in South Africa could be affected by power supply problems.

Walter de Wet, commodity strategist at Standard Bank noted reports that South Africa's government might not extend (funding) guarantees to Eskom as the power utility was struggling to raise debt for capital expansion.

This would add to the list of issues that provides support for platinum and palladium prices," said Mr de Wet.

Standard Bank also noted that the South African rand had strengthened almost 6 per cent over the past two weeks.

"When the rand strengthens, South African producers require a higher platinum and palladium prices (in dollar terms) to cover their (predominantly rand) costs," said mr de Wet.

Crude oil prices fell with Nymex April West Texas Intermediate down 50 cents to $81.00 a barrel while ICE April Brent lost 9 cents at $79.80.

Traders said that oil prices could gather further support from concerns about civil unrest in Nigeria where hundreds have been killed in clashes between Muslims and Christians.

Security forces have been put on high alert to prevent reprisal attacks and violence spreading.

News on Friday of a groundbreaking deal for a 55 per cent increase in coking coal prices, a key input in steelmaking, agreed between BHP Billiton, the world's largest miner, and JFE Steel of Japan, was seen as an important signal for commodity markets.

The deal marked the first time that coking coal contracts had been agreed on a quarterly rather than annual basis.

John Meyer, analyst at Fairfax, said that if steelmakers were able to absorb and to pass on the increase in coking coal prices, followed by a potential 60 to 80 per cent rise in iron ore costs, then other commodities could also be expected to see demand increasing.

Sentiment towards commodities was also supported by hopes for restocking in China after the Chinese government last week said it would boost spending to increase reserves of grains, edible oils, base metals and other important raw materials.

Base metals ended mixed with copper down 0.2 per cent at $7,514 a tonne while aluminium gained 0.4 per cent to $2,232.75 a tonne.

China will report February trade figures on Wednesday amid expectations that imports were affected by the new year holidays, during which a great deal of economic activities came to a halt.

"During the first half of 2009, China took advantage of the favourable price levels and imported metals on a scale that far exceeded its own needs. As a result, metal inventories swelled significantly." said Eugen Weinberg, commodity strategist at Commerzbank.

However, Commerzbank expects the pace of China's imports to slow considerably this year.

"Consequently, an important supportive pillar for (base) metal prices will diminish," said Mr Weinberg.

Gold slipped 0.7 per cent to $1,124 a troy ounce after ending Friday's session in New York at $1,131.65.