Oil firm at $121 on Russia tension, dollar dive

                                
 * Oil prices hold at $121 following 5 percent gain
                                
 * Focus on tensions between the U.S. and Russia
                                
 * Dollar retreat supports; eyes on OPEC's Sept meeting
                                
 By Felicia Loo
                                
 SINGAPORE, Aug 22 (Reuters) - Oil prices held near $121 a
barrel on Friday, a day after their biggest gain in 3 months,
after a renewed slump in the U.S. dollar and mounting tension
between the United States and Russia rekindled investor
appetite.
                                
 U.S. light crude for October delivery <CLc1> dipped 10
cents to $121.08 a barrel by 0222 GMT, after jumping nearly 5
percent on Thursday amid a broad-based rebound in commodities.
                                
 London Brent crude <LCOc1> rose 12 cents to $120.28 a
barrel.
                                
 Russia, the world's second-largest oil exporter, on
Thursday said it would respond with more than just a diplomatic
protest to a U.S. deal with Poland to station parts of a U.S.
missile defense shield on Polish soil.
                                
 The dollar limped up on Friday after suffering its biggest
one-day drop in five months a day ago, when some traders seemed
to reinstate their long-commodities/short-dollar positions on
mounting gloom about the U.S. financial sector, pulling the
dollar off an eight-month high touched earlier in the month.
                                
 "Oil prices are influenced by the U.S. dollar's retreat and
diplomatic tensions between the U.S. and Russia," said David
Moore, commodity strategist from the Commonwealth Bank of
Australia.
                                
 Prices have rebounded more than $9 from last Friday's
4-month low, ending a dramatic slide of more than $35 from the
record high of $147.27 a barrel hit on July 11 that was
triggered by worries about slowing global demand.
                                
 While China's implied oil demand raced ahead at its fastest
pace in two years in July, a sharp halt in diesel imports after
the Olympics and signs of deteriorating consumption from Japan
to the United States to Europe have undermined prices.
                                
 But attention has shifted in recent weeks away from
fundamentals toward geopolitical risks. Russia's conflict with
Georgia has already disrupted the transit of Azeri oil through
the region, and traders fear the situation could worsen.
                                
 The While House demanded on Thursday that Russia must
withdraw its military forces from Georgia "now," saying Moscow
was in violation of a commitment to do so made earlier this
month.
                                
 Russia has shown no signs of a full-scale withdrawal of
forces from Georgia and has reportedly informed NATO it wants
to cease military ties, U.S. officials said.
                                
 Dealers are also beginning to weigh up possible
Organization of the Petroleum Exporting Countries policy at its
meeting on Sept. 9, and tracking Tropical Storm Fay, which
might re-enter the Gulf of Mexico over the weekend.
 (Reporting by Felicia Loo)