UPDATE 5-Gold firms on bargain-hunting, record oil

(recasts, adds quotes, changes prices, pvs SINGAPORE)

By Atul Prakash

LONDON, May 6 (Reuters) - Gold extended gains on Tuesday on bargain hunting and record-high oil prices, which enhanced the metal's appeal as a hedge against inflation.

Bullion's fall to a four-month low of $845 an ounce on Friday also spurred buying from the physical sector, especially in top consumer India ahead of a religious festival.

But gold was still well below a record high of $1,030.80 hit on March 17. It <XAU=> was at $878.30/879.30 an ounce at 1011 GMT, against $871.15/872.55 in New York late on Monday.

"We saw a fairly big retracement last week and there was a feeling that probably it was overdone. There has been some buying as support is coming back in," said Daniel Hynes, metals strategist at Merrill Lynch.

"But it doesn't look strong enough to really kick-start a sustained upward trend. The effect of oil is less than we have seen in the past. It may continue to trade in a fairly tight range and struggle to push above $900 in the short term."

The bullion market got some support from the dollar, which fell against the euro as investors were cautious about picking up the U.S. currency in the wake of record high oil prices.

Strong oil prices, which rose to trade near $121 per barrel due to supply concerns in Iran and Nigeria, were seen weighing on the U.S. economy.