* Currency remains key driver, oil also provides direction * SPDR Gold holdings XAUEXT-NYS-TT stay unchanged By Miho Yoshikawa TOKYO, Aug 19 (Reuters) - Gold inched up to trade around $940 on Wednesday, maintaining the previous session's firm sentiment with the precious metal assuming its traditional role as a currency hedge against the dollar. Strong crude oil prices also helped enhance gold's appeal for investors seeking protection against inflation, which erodes the value of paper assets. "I think a combination of things have meant that equities markets' have been pretty weak and pretty volatile, and consequently the U.S. dollar had managed to put on a fair bit of strength as risk aversion positions were put back on," said Darren Heathcote, head of trading at Investec Australia. "And in the last 24 hours we've seen some unwinding of that and hence gold's managed to recover," he said. Heathcote said he expected bullion to continue to trade with its traditional inverse correlation to the dollar. Gold XAU= stood at $940.30 per ounce at 0306 GMT Tuesday, up 0.3 percent from New York's notional close of $937.30. The euro mostly held steady against the dollar on Wednesday after it rose in the previous session, recovering from multi-week lows against the dollar, helped by better-than-expected German data which increased optimism about the euro zone economy. [USD/] At the peak of the economic crisis earlier this year, both gold and the dollar moved in the same direction as investors sought a safe haven in the U.S. currency. However, that link was broken as the price of bullion rose as a result of dollar-hedge buying. U.S. gold futures for December delivery GCZ9 were at $942.30 per ounce, up 0.3 percent. "In addition to that the usual influence in terms of oil will have some kind of play because you know its part of all the inflationary picture and people are still predicting high inflation further out," Heathcote said. U.S. crude CLc1 continued to hover around $70 per barrel on Wednesday after industry data showed a surprisingly sharp decline in U.S. inventories last week, extending gains from the previous session when it rose more than 3 percent. [O/R] Japan's Nikkei average dipped 0.2 percent in choppy trade on Wednesday, failing to emulate the rise in U.S. stocks, weighed down by investor caution after disappointing U.S. housing data. [.T] Demand for physical gold from exchange-traded funds remained soft, however with holdings of the largest unchanged for a week. The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, said its holdings stood at 1,065.49 tonnes as of Aug. 18, unchanged since Aug. 11. [GOL/SPDR] Gold imports by India, a major consumer, slumped by two-thirds in July from a year earlier, in a decline that industry officials blamed on high prices.

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