Gold steadies ahead of U.S. inflation data

LONDON (Reuters) - Gold was steady after Monday's sharp gains as the dollar languished against the euro and oil held above $130 a barrel, with traders awaiting U.S. economic data to give fresh market direction.

Gold was at $883.00/884.00 an ounce at 5:34 a.m. EDT, steady from $883.60/884.80 an ounce late in New York on Monday, when it jumped as high as $894.70 an ounce on a weaker dollar.

Traders are turning their attention to inflation and will be closely looking at data on the U.S. producer price index for May, which is due at 8:30 a.m. EDT.

Also potentially impacting the dollar will be numbers for May housing starts and building permits, due at the same time, and industrial production data due at 9:15 a.m. EDT.

These are expected to show a decline in construction and industrial production activity, which could argue against a hike in interest rates.

"The impact on gold will depend on whether the market puts more emphasis on the inflation or the economic activity data," said Dresdner Kleinwort consultant Peter Fertig in a note.

While a rise in inflation could benefit the dollar by increasing the likelihood of a rate hike, it is also likely to spur buying of gold as a hedge against rising prices.

"Increasing interest in inflation across all major regions is now starting to play on people's minds," said Merrill Lynch analyst Daniel Hynes.

"Oil is a major inflationary factor and it is obviously placing more pressure on the budgets of consumers in the U.S., which is going to weigh on the U.S. dollar," he added.

"Higher-than-expected inflation would probably support gold, but that is going to be capped by the possibility of rate hikes."

Financial authorities in both Europe and the U.S. have expressed concern over rising inflation in recent weeks, chiefly spurred by a sharp rise in oil prices.

Oil rallied to a new all-time high of $139.89 a barrel on Monday on the back of a weaker dollar and ongoing concerns over falling supply and tightening stockpiles.

Though prices have eased a touch this morning, they remain firmly above $130 a barrel, stoking inflation fears.

Silver edged up to $17.23/17.29 an ounce from $17.16/17.22 late in New York on Monday, when it jumped to a one-week high of $17.40 due to a weaker dollar and gains in gold.

Spot platinum rose to $2,046.00/2,066.00 an ounce from $2,038.50/2,058.50 late in New York.

Spot palladium edged up to $459.00/464.00 an ounce from $456.50/464.50. It hit a high of $460 an ounce on Monday, its strongest level since April 18.

(Reporting by Jan Harvey: Editing by Peter Blackburn)