UPDATE 6-Gold hits one-wk low on dlr after inflation data

(Recasts, updates with closing prices, market activity, adds NEW YORK to dateline)

By Frank Tang and Atul Prakash

NEW YORK/LONDON Dec 14 (Reuters) - Spot gold slipped to a one-week low on Friday, hurt by a dollar rally after a report showed signs of U.S. consumer inflation and slashed expectations of more aggressive interest rate cuts from the Federal Reserve.

Even though rising consumer and wholesale prices should boost gold's appeal as a hedge against inflation, bullion's near-term direction could hinge on the strength of the dollar, which has been rising this week on the outlook for a more resilient U.S. economy, market watchers said.

Spot gold XAU= fell as low as $787.60 an ounce, the lowest since Dec. 6, and was quoted at $792.70/793.50 by New York's last quote at 2:15 p.m. EST (1915 GMT), against $797.10/797.80 late in New York on Thursday when it tumbled around 2 percent.

Most-active February gold GCG8 on the COMEX division of the New York Mercantile Exchange settled down $6.00 at $798.00 an ounce.

The dollar surged 1.5 percent versus the euro, the highest since late October, after a government report showed that consumer prices jumped 0.8 percent, driven by surging energy costs. [ID:nN14305067]

The U.S. consumer price index in November rose at its fastest pace in more than two years, which may limit the Fed's willingness to cut rates and in turn preserve the return on dollar assets.

"I am impressed with how gold is acting in the face of the stronger dollar," said Greg Orrell, portfolio manager, OCM Gold Fund in Livermore, Calif.

Orrell, whose fund has about $150 million in assets under management, said that even though U.S. prices were rising the Fed would be handcuffed to fight inflation due to its resolve to boost the economy, and gold should then benefit.

On Thursday, gold finished nearly 2 percent lower, also hit by a stronger dollar after data showed robust retail sales and an unexpected rise in wholesale inflation.

"Gold is quite sensitive to small changes in sentiment about the dollar. Any data that suggest that U.S. interest rates won't come down would support the dollar and harm gold," Matthew Turner, precious metals analyst at Virtual Metals, said.

OIL DOLLAR DOUBLE WHAMMY

Gold has lost more than 6 percent since hitting a 28-year high of $845.40 an ounce in early November, as investors and speculators booked profits ahead of the year-end. It hit its lowest in nearly two weeks at $777 in early December.

Its recent decline was also due to a drop in energy prices, as the yellow metal is often used by investors as a hedge against oil-led inflation.

U.S. crude futures CLc1 finished 1 percent lower to just above $91 a barrel, after flirting with $100 just two weeks ago.

"Crude oil's down. But I think that gold has been more focused on the dollar recently, more so than what's been going on in the energy markets," said David Rinehimer, director of Citi Futures Perspective in New York.

Rinehimer said that if inflation data would boost real interest rates, then that would be supportive to the dollar and would also trigger selling pressure in the gold market.

In other bullion markets, Japanese gold futures fell. The key October 2008 contract <0#JAU:> ended 10 yen per gram lower at 2,925 yen.

In market news, exports of once-dominant Italian jewellery to the key U.S market fell 7.1 percent year-on-year to 439 million euros ($645 million) in the first eight months of 2007. [ID:nL14314592]

The U.S market once accounted for up to 25 percent of all Italian jewellery sold abroad, but a strong euro against the dollar, high U.S export duties and competition from India, China and Turkey have cut Italian sales there in the past years.

Platinum XPT= dropped to $1,475/1,480 an ounce from $1,476/1,480 in New York on Thursday, while palladium XPD= fell to $352/356 an ounce from its previous finish of $346/349. Silver XAG= was down at $13.82/13.87 an ounce, versus its Thursday close of $14.04/14.09. (Additional reporting by Lewa Pardomuan in Singapore)