By Jan Harvey LONDON (Reuters) - Gold firmed in Europe on Tuesday as the dollar's weakness boosted interest in the precious metal, while firmer oil prices also highlighted bullion's appeal as a potential hedge against inflation. Spot gold was bid at $945.60 an ounce at 6:24 a.m. EDT, against $944.65 an ounce late in New York on Monday. U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange rose $1.10 to $948.00 an ounce. Gold is chiefly being driven by the currency markets at present, analysts said, as a weaker dollar makes commodities priced in the currency cheaper for non-U.S. investors. "The main issue is still the commodity versus dollar relationship, which we saw had a change in sentiment on Friday when the (U.S. July payrolls) number caused the dollar to strengthen," said Ole Hansen, senior manager at Saxo Bank. "This is still the main driver in the market." "We broke below $950 yesterday, which triggered quite a few stops in the market," Hansen added. "Today we are testing the sell-off, and I think we will have a resistance around $953 and support down toward the low $940." Traders are looking ahead to a Federal Reserve meeting in Washington for its impact on currencies, and by extension gold. While the Fed is likely to hold interest rates, Chairman Ben Bernanke's accompanying statement will be watched for clues on the direction of the U.S. economy. Better-than-expected economic data, a recovery in equity markets and the success of the government's Cash for Clunkers program to revitalize car sales are all boosting hopes the recession may be bottoming out in the United States. If Bernanke confirms this view, it could boost expectations interest rates will rise, which may benefit the dollar. The U.S. unit has previously benefited from economic weakness as it is seen as a haven, but this trend may be turning, analysts say. "The dollar's ability to rally amid this improving economic environment is a major change and shows that the focus of dollar strength is shifting from risk-aversion to future interest rate hikes," said MF Global in a note. BELLWETHER On the wider markets, European shares ticked higher as firmer metals prices lifted mining stocks, while world stocks shrugged off disappointing Chinese data. Oil also rose as record Chinese imports and refinery output offset mixed economic data. Strength in the commodities bellwether can indicate rising interest in the asset class, and fuels interest in gold as a hedge against inflation. But lackluster demand for physical gold remains a drag on prices. Some jewelry buying re-emerged in major gold consumer India after prices hit a one-week low on Monday, but many orders were made around $930-935 an ounce. The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, said its holdings declined by another 11,329 ounces on Monday, and have fallen more than 65 tonnes from record levels since June 1. While ETF inflows have slowed in the second and third quarters after a strong start to the year, investment in futures on New York's COMEX exchange have risen to balance this out. But the sustainability of this trend is uncertain, analysts said. "With fund players having built substantial longs over the last few weeks and the market lacking strong physical interest to absorb pockets of selling, gold is likely to remain at risk to further bouts of liquidation in the near-term," said James Moore, an analyst at TheBullionDesk.com. In supply news, the South African mineworkers' union said a worker had been killed at AngloGold Ashanti's (ANGJ.J: Quote, Profile, Research, Stock Buzz) Mponeng mine. Among other precious metals, silver prices climbed along with gold. Silver was at $14.36 an ounce against $14.30, while platinum was at $1,249 an ounce against $1,243.50 and palladium was at $270 against $272. (Additional reporting by Martina Fuchs; Editing by James Jukwey)

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