UPDATE 5-Gold drops on dollar firmness, oil slide

(recasts, adds quotes, changes prices)

By Karl Plume

LONDON, May 27 (Reuters) - Spot gold fell more than 2 percent on Tuesday to the lowest level in a week on a stronger dollar and a sharp decline in oil prices.

Spot gold XAU= dropped as low as $903.50 an ounce and was trading at $905.40/906.40 at 1406 GMT, down from $925.20/926.60 in New York late on Friday.

"The two key drivers have been both inflation concerns and the movements of the dollar. (But) those both have moved against the gold and we've seen prices come off amid some profit taking," said Suki Cooper, metals analyst at Barclays Capital.

A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

The euro fell broadly from one-month highs on Tuesday, after softer-than-expected German and French sentiment data cast a shadow over the health of the euro zone economy and made interest rate hikes less likely. [ID:nN27365103]

The dollar built upon earlier gains after a U.S. Commerce Department report which showed an unexpected rise in new home sales last month, the first month-on-month increase since October.

The metal also came under pressure because of oil prices, which dropped below $130 a barrel, after a stronger U.S. dollar helped to pull prices down from peaks hit when rebels attacked Nigerian oil facilities.

"Volatility looks set to remain high in the coming days with the dollar and oil to continue providing much of the metals intra-day direction," James Moore, precious metals analyst at TheBullionDesk.com, said in a daily market report.

Gold futures for June delivery GCM8 on the COMEX division of the New York Mercantile Exchange also fell more than 2 percent and were last trading $18.30 lower at $907.50 an ounce.

Other precious metals followed suit as spot silver XAG= fell more than 4 percent and platinum XPT= ceded about 1.4 percent.

Platinum hit a high of $2,189 an ounce before falling to $2,135/2,145 at 1432 GMT, versus $2,156.50/2,176.50 late in New York on Friday.

Silver XAG= fell to $17.55/17.61 an ounce from $18.18/18.26, while palladium XPD= fell to $443/448 from $446/454. (Additional reporting by Atul Prakash; Editing by Nigel Hunt)