UPDATE 6-Gold slides to three-month low as dollar rises

* Dollar heads for biggest weekly rise in 3-1/2 years

* Oil slides more than $2/barrel, other commodities decline

* Silver down nearly 5 pct to seven-month low, tracking gold

(Recasts, updates prices, adds comment)

By Jan Harvey

LONDON, Aug 8 (Reuters) - Gold slid more than 2 percent on Friday to a three-month low as the dollar headed for its biggest weekly rise in 3-1/2 years, and looked set to fall further as investors liquidated commodity holdings.

Gold XAU= was at $850.90/851.90 an ounce at 1414 GMT, down from $871.05/872.45 late in New York. Earlier the metal hit an session low of $850.50, its weakest level since May 2.

The precious metal is down nearly $60 an ounce, or 6 percent, from its level in New York late last Friday.

"The main driver at this point is the strength of the dollar, without a doubt," said Tom Hartmann, a trader at Altavest Worldwide Trading.

A stronger dollar typically pressures gold, which is often bought as a hedge against weakness in the U.S. currency.

The dollar surged against the euro, the pound and the Swiss franc, as fears over the spreading economic slowdown dented confidence in other currencies. [ID:nN08411008]

The U.S. currency is on track for its biggest one-day rise in four years against the euro, which has been weakening since European Central Bank president Jean-Claude Trichet expressed caution over the European growth outlook on Thursday.

Traders interpreted his comments as a sign a euro zone rate hike was unlikely in the near future.

Gold in euro terms was only slightly softer, trading at 566.90 euros against 568.45 in late New York trade on Thursday.

"Clearly there is some demand from a portfolio perspective for gold in euro terms, many investors liking the portfolio protection afforded by the yellow metal in an inflationary environment," said JP Morgan analyst Michael Jansen in a note.

Gold is also being pressured by a sell-off of commodities almost across the board, with copper, coffee, sugar and oil all declining.