UPDATE 6-Gold up 1 pct from 2-week low as dollar slips

(Releads, updates with prices)

By Karl Plume

LONDON, May 30 (Reuters) - Gold rose more than 1 percent on Friday after hitting a two-week low, as a weaker dollar and sharp declines in bullion prices in past sessions attracted investors and bargain hunters.

Other precious metals largely followed suit, with spot platinum XPT= and palladium XPD= recovering from three-week lows and silver XAG= bouncing back from a four-week trough.

Spot gold XAU= rose as high as $889.60 an ounce and was quoted at $886.40/887.50 by 1611 GMT, against $877.85/879.25 late in New York on Thursday. It fell about 6 percent this week to a low of $870 on Friday, its lowest point since May 15.

"We saw a good amount of support at these levels about a week-and-a-half ago and there was a bounce off of that," said Merrill Lynch metals strategist Daniel Hynes, referring to a price level of around $885.

"This has set the floor for this stage and it will be what gold will rally from, until the momentum is strong enough to keep it going."

The dollar fell to session lows versus the euro as investors took profits ahead of the weekend after recent strong gains in the U.S. currency.

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

Oil climbed back above $127 a barrel on Friday, recovering from earlier losses triggered by a U.S. regulatory probe.

Physical demand for gold has slowed near the high prices struck last week and demand may not improve significantly unless buyers are convinced that prices are poised to climb again, analysts said.

The third quarter is normally a slow demand period for gold.

"Physical demand has almost dried up in key markets like India, due to lack of any major festivals in the near term," analysts with Vision Commodities Services said in a note.

"High inflation, high energy prices and a general propensity to purchase household goods in the summer months have turned out to be additional culprits that force to defer any scheduled gold buying."

PLATINUM REBOUNDS