Gold futures fell from a two-week high as the dollar’s rally curbed demand for the metal as an alternative asset.

The euro slumped against the greenback after Greek Prime Minister Lucas Papademos warned that his country may face economic collapse as soon as March, and France’s debt costs climbed. Gold’s correlation with the 17-nation currency is the highest since March 2010, data compiled by Bloomberg show.

Gold futures for February delivery declined 0.3 percent to $1,607.70 an ounce at 10:19 a.m. on the Comex in New York. Earlier, the price reached $1,626.80, the highest for a most- active contract since Dec. 21, partly because of physical demand in Asia.

The metal climbed 4.7 percent in the previous three sessions. In the fourth quarter, futures dropped 3.4 percent, snapping a rally since the end of 2008.

Oil extended declines after a U.S. government report showed an unexpected increase in inventories.

Supplies (DOESCRUD) rose 2.21 million barrels last week to 329.7 million, the Energy Department said today. Inventories were forecast to decline 1 million barrels, according to the median of 13 analyst estimates in a Bloomberg News survey.

Crude oil for February delivery fell $1.19, or 1.2 percent, to $102.03 a barrel at 11:07 a.m. on the New York Mercantile Exchange. Oil traded at $102.69 before the release of the report at 11 a.m. in Washington, a day later than usual because of the New Year’s Day holiday. It reached an intraday low of $101.95 after the report was released.

Inventories of gasoline and distillates also rose. Gasoline inventories rose 2.48 million barrels to 220.2 million, and distillates added 3.22 million to 143.6 million.

Oil also fell as rising borrowing costs in France raised concern that Europe will struggle to contain the debt crisis.

France sold benchmark 10-year bonds at an average yield of 3.29 percent, up from 3.18 percent in a sale on Dec. 1.