UPDATE 2-Gold holds its sharp gains as inflation looms

(Updates prices to afternoon)

By James Regan

SYDNEY, May 21 (Reuters) - Gold held firm on Wednesday, clinging on to sharp overnight gains sparked by growing inflation worries after oil climbed to a new record.

A weakened U.S. dollar also gave gold some lift as investors across Asia gained more buying power against U.S. dollar-denominated bullion.

"The combination of oil and the currencies spells more interest in gold," said a metals dealer for an Australian bank, adding there was a risk profit-takers could take some of the air out of the rally if the dollar regained some strength.

At 0747 GMT, spot gold <XAU=> cost $920.10/921.10 an ounce versus $920.20/921.40 late in New York.

Gold futures for June delivery GCM8 on the COMEX division of the New York Mercantile Exchange were up 80 cents at $921.00 an ounce in electronic trading. June futures on Tuesday rose to $924.10, the highest level since April 23.

Gold's inflation hedge role was enhanced as oil surged to a record high, targeting $130 a barrel.

U.S. government data shows U.S. core inflation at the producer level posted a large advance in April. [ID:nN20291072]