By Atul Prakash

LONDON (Reuters) - Gold hit a new peak on Wednesday and is poised to scale 28-year highs on safe-haven buying and a sharp drop in the dollar after the U.S. Federal Reserve slashed interest rates.

Other precious metals also firmed, with platinum rising to its highest in nearly eight weeks, silver hitting a six-week peak and palladium touching its best level in almost a week.

Spot gold touched $726 an ounce, its loftiest level since May 2006, before easing to $723.00/723.80 by 3:10 p.m., against Tuesday's late New York levels of $719.30/720.30.

"The rate cut reflects pretty well the concerns in the market, especially in terms of liquidity. We might see another wave of buying in gold on the back of a weaker dollar and also on the willingness in the market to get most ideally possible positions," Frederic Panizzutti, analyst at MKS Finance, said.

"Gold should again play its full and entire role as a safe haven asset against other potentially falling assets. $730 is definitely a very short term target, but we believe there is further potential beyond $730 in the short- to medium-term."

Bullish sentiment lifted U.S. gold futures to a 28-year high on Tuesday, with the December gold contract on the Globex electronic platform used by the New York Mercantile Exchange and its COMEX metals division rising to a high of $735.50 an ounce.

Spot gold hit a 26-year peak of $730 in mid-May last year. A rise above that level would take bullion to its highest since January 1980, when it hit an all-time high of $850 an ounce.

The dollar fell to a 15-year low against a basket of currencies but later rose as investors bet the Fed's interest rate cut will help boost a slowing U.S. economy.