TOKYO, JAPAN - Gold hit record highs over $1,220 an ounce on Thursday as the precious metal continued to attract investors looking for an alternative to the U.S. dollar.

Gold has risen by more than 7 percent since it touched a low of $1,136.80 last Friday on fears of a possible default on debt in Dubai, which forced investors to sell the metal to raise cash to cover losses.

Analysts say worries about Dubai's loan payment problems are still lingering, although they have been pushed onto the back-burner, with the dollar's persistent weakness coming to the fore.

Shuji Sugata, a manager at Mitsubishi Corp Futures, said gold continued to be lifted higher because investors believe the greenback will stay weak.

"The persistent view that the dollar will remain weak stems from moves to review dollar-based assets and the belief that interest rates will be stuck at low levels, and these are factors that remain unchanged," he said.

Spot gold XAU= rose as high as $1,224.65 per ounce by 0244 GMT, before drifting lower to $1,222.50, up 0.5 percent from New York's notional close of $1,215.90.

U.S. gold futures for February delivery GCG0 touched an all-time high of $1,226.00.

The metal reached record highs in euro and sterling terms on Wednesday, according to Reuters data, indicating independent gold strength.

The yen and the dollar fell on Thursday after Bank of America said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence and trimming safety bids in those currencies.

Investors were also taking heart from moves by central banks to buy gold to diversify reserves.

India's purchase of about half the International Monetary Fund's planned sales of 403.3 tonnes of gold has reinforced views that gold has established itself as an investment asset as well as an alternative currency.

Researchers with China's ruling Communist Party have said that the country should buy more gold to boost its holdings.

Strong investor interest in gold was also demonstrated in the increase in holdings of the world's largest gold-backed
exchange-traded fund, SPDR Gold Trust (GLD), which is nearing a the record high of 1,134.03 tonnes hit on June 1.

It stood at 1,131.214 tonnes as of Dec. 2.

The world's largest silver-backed exchange-traded fund, the iShares Silver Trust (SLV), said its silver holdings fell 3.49 tonnes, or 0.04 percent, from the previous business day to 9,401.30 tonnes as of Dec. 2. Its holdings hit a record 9,404.79 tonnes on Nov. 30.