TOKYO (Reuters) - Gold was steady on Tuesday as investors continued to track moves in the dollar, with the metal remaining within striking distance of the key $1,000-an-ounce mark. Bullion touched $988.50 on Monday, the highest level since February 24, as strong U.S. data reduced safe-haven demand for the dollar pushing it to its lowest level this year against the euro and a basket of currencies. Oil, which hit a near seven-month high on Monday, also reignited inflation fears, helping to lift gold. "Oil is adding to what is already a potentially inflationary picture, but the dollar is ultimately the main driver at the moment," said Darren Heathcote, head of trading at Investec Australia. He said he expected the dollar to continue to weaken as risk appetite returns. Gold was at $974.75 at 0600 GMT, compared to New York's notional close of $973.95, slipping from a high of $977.75. U.S. gold futures for August delivery were at $976.10 per ounce, down 0.4 percent from the previous day's settlement. A softer dollar typically boosts gold, both because bullion can be bought as an alternative to the U.S. currency and because its weakness makes dollar-priced commodities cheaper for non-U.S. buyers. The two assets had given up their traditional relationship as both reacted primarily to risk aversion. But as optimism grows that the worst of the economic downturn is over, their usual trading dynamic has returned. The dollar steadied on Tuesday after hitting its lowest this year against the euro and a basket of currencies as reassuring economic data and a rally on Wall Street reduced the allure of the greenback. U.S. crude futures slipped on profit taking on Tuesday after rising to a near seven-month high of $68.68 per barrel the previous day on hopes for an economic recovery. It continues to trade a touch above $68. The Reuters-Jefferies CRB index .CRB, a global commodities benchmark, marked its biggest one-day gain in two months at 3 percent on Monday. In another sign of renewed investor interest in gold, the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings hit a record 1,134.03 tonnes as of June 1, up 15.27 tonnes or 1.4 percent from the previous business day. The world's largest silver-backed exchange-traded fund, the iShares Silver Trust, said its silver holdings rose 260.36 tonnes from the previous day to a record 8,608.54 tonnes as of June 1. The rally in global stock markets has bolstered the investment power of funds, spurring buying of gold and silver ETFs.

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