* Oil rises more than $1 a barrel as OPEC cuts output
* SPDR Gold Trust cuts bullion holdings by 10 tonnes * Platinum, palladium fall on demand worries
(Recasts, updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Sept 10 (Reuters) - Gold recovered in Europe on Wednesday after hitting an 11-month low in Asian trade with rising oil prices boosting bullion's appeal as an inflation hedge and on strong physical demand.
Spot gold <XAU=> was at $775.50/776.60 an ounce against $775.80/777.80 in late New York, well off its session low of $762.55 an ounce, its weakest since Oct 2007.
Fund liquidation of commodity positions was keeping all precious metals under pressure, traders said.
"The price move that we have had down to here is pushing physical dealers to replenish their stocks," said Afshin Nabavi, head of trading at MKS Finance.
"But while this liquidation of large positions is happening, physical demand will only slow (the fall in prices)."
"Today it is going to be particularly important to see if we can hold onto the $775 level," he added.
Gold is benefiting from an uptick in crude prices, which rallied more than $1 a barrel on Wednesday after oil cartel OPEC unexpectedly said it would cut its output by 500,000 barrels a day. []
Higher oil prices boost expectations inflation will rise, encouraging buying of bullion as a hedge against rising prices.
Gold traders were awaiting U.S. crude and oil product stockpile data to be released by the Dept of Energy later on Wednesday for clues as to the future direction of trade.
"The major factor today is probably again the price of crude oil," said Dresdner Kleinwort in a note. "The weekly DoE data on U.S. inventories could lead again to wide swings in the oil price, which would have also an impact on gold."
They were also watching movements in the dollar. The U.S. currency slipped against a basket of currencies as traders awaited a survival plan from Lehman Brothers, as well as quarterly results which were expected to be grim. []
ETF HOLDINGS DIP
The world's largest gold-backed exchange traded fund, the SPDR Gold Trust, said its bullion holdings dipped more than 10 tonnes, or 1.67 percent, on Sept. 9.
The trust now holds 631.2 tonnes of gold, down from 641.93 tonnes on Monday. The trust has sold some 68.7 tonnes of gold since its holdings hit a record 705.9 tonnes in July.
"With the gold price having tumbled so far, some weaker holders are bailing out," said Stephen Briggs, commodity strategist at RBS Global Banking and Markets.
"Outflows from ETFs clearly are important, because at the end of the day ... gold is nothing if not an investment vehicle," he added.
Among other precious metals, platinum and palladium both slipped sharply as investors worried about the outlook for demand from carmakers, who are major consumers of both platinum group metals.
China said its passenger car sales fell 6.24 percent year-on-year in August, the first monthly decline in more than two years. []
Platinum fell to an 18-month low of $1,196.50, down more than 3 percent on the day, while palladium slid more than 5 percent to $219.50, its lowest since November 2005.
"The dominant use for the PGMs in the real world is in autocatalysts," said Briggs. "Car sales are proving pretty disastrous at the moment, so that is what is driving them down."
Spot platinum <XPT=> later recovered to trade at $1,202.50/1,222.50 an ounce against $1,236.00/1,256.50 late in New York on Tuesday. Palladium <XPD=> was at $228.00/233.00 against $234.00/242.00.
Silver <XAG=> slipped to $11.22/11.28 from $11.39/11.47.
(Reporting by Jan Harvey; editing by Christopher Johnson)
