PRECIOUS-Gold rises to trade around $940, eyes on dollar

* Dollar remains key driver, oil also provides direction

* SPDR Gold holdings XAUEXT-NYS-TT stay unchanged

By Miho Yoshikawa

TOKYO, Aug 19 (Reuters) - Gold inched up to trade around $940
on Wednesday, maintaining the previous session's firm sentiment
with the precious metal assuming its traditional role as a
currency hedge against the dollar.

Strong crude oil prices also helped enhance gold's appeal for
investors seeking protection against inflation, which erodes the
value of paper assets.

"I think a combination of things has meant that equities
markets have been pretty weak and pretty volatile, and
consequently the U.S. dollar had managed to put on a fair bit of
strength as risk aversion positions were put back on," said
Darren Heathcote, head of trading at Investec Australia.

"And in the last 24 hours we've seen some unwinding of that
and hence gold's managed to recover," he said.

Heathcote expects bullion to continue to trade with its
traditional inverse correlation to the dollar.

Gold XAU= stood at $938.50 per ounce at 0530 GMT Wednesday,
up 0.1 percent from New York's notional close of $937.30. It rose
as high as $942 earlier on Wednesday.

The euro mostly held steady against the dollar on Wednesday
after it rose in the previous session, recovering from multi-week
lows against the dollar helped by better-than-expected German
data which increased optimism about the euro zone economy. [USD/]

At the peak of the economic crisis earlier this year, both
gold and the dollar moved in the same direction as investors
sought a safe haven in the U.S. currency.

However, that link was broken as the price of bullion rose as
a result of dollar-hedge buying.

U.S. gold futures for December delivery GCZ9 were at $940.50
per ounce, up 0.1 percent.

"In addition to that the usual influence in terms of oil will
have some kind of play because you know it's part of all the
inflationary picture and people are still predicting high
inflation further out," Heathcote said.

U.S. crude CLc1 continued to hover around $70 per barrel on
Wednesday after industry data showed a surprisingly sharp decline
in U.S. inventories last week, extending gains from the previous
session when it rose more than 3 percent. [O/R]

Japan's Nikkei average .N225 was flat on Wednesday with
investors wary after disappointing U.S. housing figures increased
uncertainty about an economic recovery. [.T]

Demand for physical gold from exchange-traded funds remained
soft, however, with holdings of the largest unchanged for a week.

The world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust (GLD), said its holdings stood at 1,065.49 tonnes
as of Aug. 18, unchanged since Aug. 11. [GOL/SPDR]

Gold imports by India, a major consumer, slumped by
two-thirds in July from a year earlier, a decline that industry
officials blamed on high prices. [ID:BOM484577]

PRICES

Precious metals prices at 0535 GMT
Metal Last Change Pct chg YTD pct chg Turnover
Spot Gold 938.10 0.80 +0.09 6.58
Spot Silver 13.87 -0.09 -0.64 22.53
Spot Platinum 1223.50 -4.50 -0.37 31.28
Spot Palladium 269.50 -1.50 -0.55 46.07
TOCOM Gold 2862.00 -19.00 -0.66 11.23 30163
TOCOM Platinum 3729.00 -49.00 -1.30 40.61 9926
TOCOM Silver 423.00 -9.00 -2.08 32.48 172
TOCOM Palladium 827.00 -5.00 -0.60 50.36 95
Euro/Dollar 1.4125
Dollar/Yen 94.49
TOCOM prices in yen per gram, except TOCOM silver which is
priced in yen per 10 grams. Spot prices in $ per ounce.
(Additional reporting by Chikako Mogi; Editing by Michael
Watson)