UPDATE 5-Gold rises as oil climbs on storm fears

* Oil climbs $2 a barrel on fears storm will hit U.S. output

* Dollar slips as traders take profits after six-month high (Updates prices, adds comment)

By Jan Harvey

LONDON, Aug 27 (Reuters) - Gold climbed in Europe on Wednesday as oil prices rose, boosting the precious metal's appeal as an inflation hedge, and as the dollar retreated from a six-month high hit this week.

Oil firmed more than $2 a barrel as fears grew that tropical storm Gustav could hit U.S. oil installations in the Gulf of Mexico. [ID:nT46087]

Gold <XAU=> rose to $831.00/832.00 an ounce at 1340 GMT from $822.90/824.30 an ounce late in New York on Tuesday.

"Gold is mainly supported by a firm crude price," said Philip Carlsson, Saxo Bank's global products manager for futures and options.

"I don't see the market as all bullish though, and should the tropical storm create fewer problems than expected, the sell-off could be immediate," he added.

The dollar also slipped against the euro on Wednesday, giving up more of the gains that took it to a six-month high against the single currency on Tuesday, as investors cashed in profits. [ID:nLR677081]

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

In the longer term, global economic deterioration is expected to support the dollar, as the Federal Reserve is likely to hold rates while other key central banks are expected to cut.

This should keep a lid on gains in gold, analysts said.

Traders awaited the release of U.S. weekly oil inventory data at 1435 GMT, which could impact crude prices. A Reuters poll of analysts forecast a 1 million barrel rise in crude stocks.

Resurgent physical demand for gold coins and bars, which was a key factor supporting gold prices over $800 an ounce, is still supportive, traders say.

Jewellery demand is also expected to pick up going into September, especially in India, the world's biggest jewellery market.

"Reports state that physical demand out of India is picking up ahead of the approaching festival season that peaks in October for Diwali," noted Marc Elliott, an analyst at Fairfax.