* Palladium premium over platinum reaches $4.50/oz
* Move away from diesel depresses platinum
* GRAPHIC-2017 metal returns: http://tmsnrt.rs/2eqHKkL
* GRAPHIC-Platinum/palladium ratio: http://tmsnrt.rs/1QjSZAC
LONDON, Sept 27 (Reuters) - Palladium hit price parity with its better-known sister metal platinum on Wednesday for the first time since 2001, as demand expectations for the two assets diverged.
Both are primarily consumed by automakers for catalytic converter manufacturing, but platinum is more heavily used in the diesel vehicles that have fallen out of favour since 2015's Volkswagen emissions-rigging scandal.
Palladium, in contrast, has benefited from a switch to petrol engines and expectations for growth in hybrid electric vehicles, which tend to be gasoline-powered.
"All the news we've been hearing about the electrification of vehicles is good for sentiment towards palladium, as it implies more gasoline hybrid vehicles," Mitsubishi analyst Jonathan Butler said.
"Palladium has the wind in its sails from investor interest and there has been a good amount of speculative activity holding it up and keeping market conditions tight," he added. "Physical demand in Greater China has been very strong this year."
Spot palladium was at $919.50 an ounce at 1342 GMT, up 0.6 percent, while platinum was down 0.3 percent at $917.49 an ounce. Palladium prices have risen 35 percent this year, against a 2 percent increase in platinum.
(Reporting by Jan Harvey; Editing by Dale Hudson)