(Recasts, adds comment, updates prices)
By Jan Harvey
LONDON, June 16 (Reuters) - Gold rose 3 percent in Europe on Monday as the dollar weakened further against the euro in the wake of weaker than expected U.S. manufacturing data and more hawkish comments from the European Central Bank.
Silver prices jumped more than 5 percent, tracking gold, to a session high of $17.40 an ounce.
Gold <XAU=> rose to $888.50/889.50 an ounce at 1405 GMT, up from $869.00/870.00 an ounce late in New York on Friday. Earlier it spiked to a session high of $894.70, up 3 percent.
"This is on the dollar movement," said Commerzbank senior precious metals trader Michael Kempinski. "It looks like we have broken out of the upside channel."
A rally in crude prices to a fresh record high in New York on dollar weakness and as distillate futures strengthened also helped buoy gold, which is often bought as a hedge against oil-led inflation. [
]The dollar's slide is benefiting a range of commodities, as dollar-priced assets such as oil and the metals become cheaper for holders of other currencies. Gold, which is also bought as a currency hedge, is taking particular support from its slip.
Last week the U.S. currency posted its best week in three years against a basket of currencies, pressuring gold to its lowest level since May 2 on Thursday.
However, the dollar is suffering on Monday from the double blow of weaker-than-expected U.S. manufacturing data and rising expectations of a euro zone rate rise after record inflation data from the area. [
]U.S. data today showed a sharper than expected contraction in manufacturing activity in New York state.
The New York Fed's Empire State general business conditions index fell to minus 8.68, from minus 3.23 in May, against expectations for a reading of minus 2.
On the other side of the Atlantic, expectations for a euro zone rate hike were boosted by comments from European Central Bank governing council member Nout Wellink that keeping inflation under control was the ECB's top priority.
His comments came after euro zone inflation data spiked to a new record of 3.7 percent year-on-year in May, according to data released Monday.
With attention increasingly turning to inflation as oil prices rally to new highs despite news of a production increase from Saudi Arabia, the outlook for the precious metal remains positive, traders said.
"Gold is starting to find its own feet in an inflationary environment, and over a longer period of time should outperform most other commodities," said Simon Weeks, director of precious metals trading at the Bank of Nova Scotia.
Silver <XAG=> is tracking gold higher, rising by more than 5 percent to its session high before settling back to trade at $17.25/17.30 an ounce from $16.48/16.56 late in New York.
Among other precious metals, spot platinum <XPT=> rose to $2,035.50/2,055.50 an ounce from $2,023.50/2,043.50 late in New York.
Spot palladium <XPD=> climbed to $454.50/462.50 an ounce from $445.50/453.50.
(Reporting by Jan Harvey; editing by Peter Blackburn)