PRECIOUS-Silver and gold lurch higher after an early dive

* Silver hits Sept 2010 low before rebounding * Gold also shoots up from 1-month low and 7 days of losses * Investors await Fed chairman's testimony on Wednesday (Updates with U.S. session, adds trader comments, NEW YORK dateline, byline) By Barani Krishnan and Clara Denina NEW YORK/LONDON, May 20 (Reuters) - Gold and silver prices gained about two percent on Monday after a roller-coaster session that opened with a gut-wrenching dive in silver prices to their lowest in 2-1/2 years before an abrupt midday turnaround. After trading lower through most of the day, gold suddenly lurched more than $10 an ounce higher around noon U.S. time, with traders citing a wave of pent-up short-covering after seven consecutive days of losses. COMEX silver futures had also plunged more than 9 percent after a big sell order at the open, triggering technical buy signals, they said. The spot price of gold, which earlier threatened to test a 1-1/2 year low touched last month, rose $27 or 2 percent by 18:25 GMT, snapping a seven-session losing streak. Silver's most-active contract on COMEX, July, settled up 1 percent at $22.582 an ounce, after hitting a September 2010 low of $20.25. The whipsaw session jolted traders and may signal new support for battered precious metals marlets. "A whole load of short-covering came in this morning as people got unnerved looking at the way some of the precious charts had tanked," said Adrian Day at Adrian Day Asset Management in Annapolis, Maryland. "I'm a buyer at these levels," said Day, whose firm manages about $200 million in commodities, about a third of that in gold holdings. Notwithstanding the rebound on the day, gold is down 17 percent for this year while silver has lost 25 percent as money rotated out of precious metals into equities and the U.S. dollar amid an improving outlook for the U.S. and global economies. Hedge funds and other major speculators in commodities pulled $1.4 billion from the U.S. gold futures market in the week to May 14, Reuters calculations of data released by the Commodity Futures Trading Commission showed. The case for buying gold as an inflation hedge has also been weakened by speculation lately that the Federal Reserve may end sooner rather than later its ultra-low interest rates and bond-buying programs to stimulate the U.S. economy. The market will now focus on congressional testimony on the U.S. economy by Fed Chairman Ben Bernanke on Wednesday and the FOMC minutes for its April meeting. Gold-backed exchange-traded funds have, particularly, seen massive outflows in recent months, although silver holdings have held up relatively better. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, hit their lowest in four years on Friday, declining 3 tonnes to 1,038.41 tonnes. "The next leg for gold is still lower, and $1,200 is our target in the next few weeks," said BofA Merrill Lynch analyst Michael Widmer said. AWAITING SILVER'S NEXT MOVE LOWER Analysts had said it was only a matter of time before silver would give way, citing flagging industrial demand. "I'm waiting for the next big wave down in silver that would take the market into the teens," Frank McGhee, chief precious metals trader at Chicago's Integrated Brokerage Services, said, referring to silver futures breaking below $20 an ounce. Holdings of the largest silver ETF, the iShares Silver Trust , fell 187.7 tonnes last week to 10,253 tonnes, hitting their lowest level since mid-January. In Monday's session, more than 3,000 lots of silver were sold in just 20 minutes of early Asian trading on Monday, Reuters data showed. Yuichi Ikemizu, a branch manager for Standard Bank in Tokyo, said an unidentified investor sold off a big chunk of silver holdings on Monday morning. The gold-silver ratio is at its highest level since September 2010, with an ounce of gold currently buying 63 ounces of silver. That is twice as much as in April 2011, when silver was trading considerably higher. "The latest move lower has been to some extent technical, but silver was the underperformer among precious metals during the mid-April fall," Citigroup metals strategist David Wilson said. "The metal had found some support from steady ETFs investment, but this has now started to come lower, showing that the retail sector is also becoming more bearish as well as professional investors." In other precious metals, platinum was up 2 percent at above $1,480 an ounce, recovering from three-week low of around $1,426 earlier in the session. Palladium rose 1.4 percent to above $745 an ounce from after a lower start at $736.97. (Additional reporting by A. Ananthalakshmi and Manolo Serapio Jr. in Singapore; Editing by Jonathan Leff and Grant McCool)