UPDATE 6-Gold climbs on weak dollar but oil dip caps gains

* Gold rallies on softer dollar but falling oil caps gains

* Investors eye non-farm payrolls data due Friday

* Platinum, palladium tick up

(Recasts, adds detail, updates prices)

By Jan Harvey

LONDON, July 31 (Reuters) - Gold was higher on Thursday,
having rallied 2 percent earlier in the session as the dollar
weakened, but gains were capped by a sharp drop in oil prices.

Gold XAU= climbed to $917.40/918.40 an ounce at 1436 GMT
from $907.20/908.40 an ounce late in New York on Wednesday.

Traders are awaiting key U.S. data, including U.S. non-farm
payrolls numbers due on Friday afternoon, to set fresh direction
to trade.

"The employment numbers are always the biggest piece of data
out," HSBC analyst Jim Steel said. "That is going to be a
determining factor tomorrow."

Gold prices rallied sharply earlier in the session as the
dollar slipped after data showed an unexpected rise in U.S.
weekly jobless claims, and as second-quarter GDP numbers came in
softer than expected. [ID:nN31150573]

European Central Bank sources also told Reuters on Wednesday
that the ECB will raise interest rates again if inflation keeps
rising, despite faltering economic growth. [ID:nLAE000176]

The precious metal touched a session high of $925.20 as
investors bought into gold as an alternative to the dollar.

However, a sharp drop in oil prices to below $125 a barrel
knocked gold from its earlier highs. Bullion typically moves in
line with crude, as it is often bought as a hedge against
oil-led inflation.

"The only reason gold is off the high is because of this
sudden weakness in oil," noted Steel.

PGMs RECOVER

Platinum and palladium, both largely used by carmakers as a
component in autocatalysts, ticked up on Thursday, having
slipped in gold's wake in the previous session.

Spot platinum XPT= rose to $1,744.00/1,764.00 an ounce from
$1,725.00/1,745.00 late in New York on Wednesday.

"The slump in platinum has brought out the buyers and the
metal has found support in the low $1700s/oz," said UBS analyst
John Reade in a note.

"We believe that platinum is now attractively priced and
that investors looking to buy good amounts should scale into
platinum at current levels."

Spot palladium XPD= rose to $377.50/385.50 an ounce from
$371.50/379.50 late in New York. Silver XAG= climbed to
$17.72/17.79 an ounce from $17.50/17.56.

The iShares Silver Trust SLV.A, the largest
physically-backed silver exchange-traded fund traded in New
York, said its holdings rose above 200 million ounces for the
first time on July 29.

(Reporting by Jan Harvey; Editing by Michael Roddy)