LONDON, June 10 (Reuters) - Palladium jumped to its highest level in nearly 3-1/2 years on Tuesday, while platinum also gained, after talks to resolve a five-month strike in top producer South Africa broke down.

Wage talks between South Africa's main mine workers' union and major platinum producers were deadlocked on Monday, prompting the mining minister to abandon his mediation role and dashing hopes for an end to a strike that is pushing the economy towards recession.

And the world's second-largest platinum producer, Impala Platinum, said on Tuesday it "has exhausted all its financial means" in its wage offer to the Association of Construction and Mineworkers Union (AMCU).

Palladium, of which South Africa is the second-biggest producer, hit its highest since February 2011 at $853.70 an ounce, and was up 1.5 percent at $850.55 as of 1404 GMT.

"For palladium, it is a combination of factors definitely including the strike, but also the possibility of a shortfall in supply from number one producer Russia and strong demand from the physical side on the back of higher car sales and also investor demand," Commerzbank analyst Eugen Weinberg said.

Platinum rose 2.3 percent to $1,477.30 an ounce after hitting its highest since May 26 at $1,479.00.

"It looks like the strikes are going to continue for some time and that's why platinum is higher," ABN Amro analyst Georgette Boele said.

"But the big risk is however on the downside should an agreement be reached, as the attempts higher over the past few months have not been as successful."

The five-month strike has halted mines that normally account for about 40 percent of global platinum output.

Analysts had expected prices to react more dramatically to the lack of supply, but platinum has risen just seven percent over the past five months as stocks on hand have helped to cover lost output.