(Updates with prices)

By Atul Prakash

LONDON, March 26 (Reuters) - Gold hit a one-week high above $950 an ounce on Wednesday as a falling dollar and strong oil prices encouraged investors to shift money back into the market after last week's heavy sell-off.

Gold <XAU=&gt; rose as high as $951.50 an ounce and was quoted at $950.30/951.30 at 1600 GMT, against $934.60/935.40 late in New York on Tuesday.

"We saw some pretty big falls last week and there has certainly been an increase in buying over the last day or so from investors who think those falls were overdone,&quot; said Daniel Hynes, metals strategist at Merrill Lynch.

"I think we are going to start seeing a little bit of a consolidation period, with gold trading around $1,000 in the next couple of weeks. I certainly expect to see the long-term upward trend continue after that.&quot;

Gold hit a record of $1,030.80 on March 17 before a broad sell-off in commodities dragged down prices to a one-month low of $904.65, briefly hurting investor confidence in the metal, seen as an alternative investment and a hedge against inflation.

The dollar slumped for a second straight session after an unexpected fall in U.S. durable goods orders bolstered worries about the economy's health, which could prompt further interest rate cuts.

Higher-than-expected U.S. new home sales numbers also failed to stop a slide in the dollar.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

Oil prices jumped $4 a barrel after a U.S. government report showed larger-than-expected drops in fuel stocks in the world's top consumer. U.S. crude CLc1 rose to $105.24 a barrel by 1524 GMT.

TREND INTACT

Analysts said gold could retest the highs in the near term.

"We are still going to have another leg up towards $1,000, but I think it might be slower than the run up we saw the last time,&quot; said Suki Cooper, metals analyst at Barclays Capital.

"There has been some profit taking, but I don't think the overall trend has been damaged,&quot; she said, adding dollar weakness, inflationary concerns, expectations of further Fed rate cuts and financial market worries were expected to continue supporting the market.

In other markets, U.S. gold futures for April delivery GCJ8 rose $16.10 an ounce to $951.10, but were off last week's record high of $1,033.90.

"In the coming weeks and months, negative dollar sentiment will remain a key driving force behind gold's bull trend, as further rate cuts by the Fed will drive investors to stronger yielding assets,&quot; said James Moore, precious metals analyst at TheBullionDesk.com.

A rate cut tends to weaken the dollar and often helps gold as investors look for alternative assets for better returns.

Platinum was supported by supply fears due to the power crisis in top producer South Africa. Palladium and silver also firmed but remained below their recent highs.

Spot platinum <XPT=&gt; rose 1.5 percent to $1,990/2,000 an ounce from $1,960/1,970 in New York on Tuesday. It hit a record high of $2,290 on March 4.

South Africa's Public Enterprises Minister Alec Erwin said on Tuesday that power utility Eskom's ability to raise capital could be undermined if it was not allowed to raise tariffs. [ID:nL25390082]

Eskom has struggled to cope with rising demand due to years of underspending on generating capacity. The energy grid came close to collapse in January, forcing gold and platinum mines to shut down for five days and driving platinum to record peaks.

Silver <XAG=&gt; rose to $18.20/18.25 from $17.78/17.83 an ounce, while palladium <XPD=&gt; was up at $453/458 an ounce, versus $442/447 in the U.S. market late on Tuesday. (Additional reporting by Bate Felix in London) (Editing by Chris Johnson, David Evans)