The price premium on ten tola (TT) bars -- 3.746 ounces of 24-carat gold -- over international spot prices was quoted at 90-95 cents versus a normal $1.25-$1.30.

The premium, used to cover the cost of transporting and insuring import shipments from major exporters such as Switzerland and South Africa, reflected the weak state of the Dubai re-export market, traders said.

"South African suppliers came in with lower premiums to reflect the poor state of demand in the market," said one major bullion importer.

"The premiums then got cut across the board," he added.

South Africa was the second major supplier to the Gulf Arab emirate in the first half of this year exporting 37.09 tonnes, according to figures compiled by the Dubai customs department.

The premium drop, coupled with weaker international spot prices, pushed TT prices in Dubai down to 3,958dirhams ($1,078), a 1.7 per cent week-on-week loss and down 12.1 per cent year-on-year.

Spot international gold was last traded on last Friday at $286.20/$286.70 an ounce, down from last weeks $291.20/$291.70 and the London Friday afternoon fix at $288.85 on the back of further strength in the US dollar and weak Asian demand.

Indian bullion import demand was capped because of the rupee weakness, continued economic uncertainty after the United States imposed sanctions on Indian for carrying out nuclear tests in May and a lack of wedding and festival demand, traders said.

Changes to Indias import regulations have also taken their toll.

"The demand has faltered because of the country's economic malaise and the change in bullion import regulations," said one major wholesaler based in Dubai.

Dubai has traditionally been the main source of gold for India, the worlds largest consumer of the yellow metal.

The domestic market made Dubai a premier re-export centre, accounting for some 80 per cent of the 660tonnes of bullion imported into Dubai in 1997.

But a decision last year by the Indian government to allow some banks and agencies to buy gold direct from source rather than relying on the "middle-market" in Dubai has bitten heavily into the local market.

Gold imports into Dubai during the first six months of the year fell 20 per cent to around 244 tonnes.