Gold bulls wary, need solid steer from Fed

* Gold (Other OTC: GDCWF - news) holds steady as stocks, dollar, commods plunge

* Prices up 8 pct from July low but down 2 pct this year

* Bulls await solid news on outlook before jumping in

By Jan Harvey

LONDON, Aug 24 (Reuters) - A dollar slump on Monday and a China-fuelled rout in equities and industrial commodities has propelled gold to seven-week highs, but bulls are still wary of a wholesale plunge into the market.

The sell-off has reinforced talk that the Federal Reserve may put off a widely expected hike in interest rates in September and seen bears retreat. But bulls are not fully convinced gold's weakness, which saw the precious metal fall to a 5-1/2 year low at $1,077 last month, is over.

As traders nowadays are more blase about sharp moves like Monday's than they were before the financial crisis, they will need a more solid steer from the U.S (Other OTC: UBGXF - news) . central bank.

"During the last financial crisis, gold's gains came when central banks started to announce more easing, for example, rather than just as a reaction to bad news. So we need some news flow along those lines, rather than just risk aversion," Macquarie analyst Matthew Turner said.

"In this kind of crisis people normally want liquidity, usually through cash or government bonds, rather than gold."

Speculation that a rate hike could be postposed had already prompted the biggest weekly rally in gold prices since January last week, taking gold prices to $1,168.40, their highest since early July, as investors scrambled to cover short positions.

Higher U.S. interest rates lift the opportunity cost of holding non-yielding gold and are likely to mean a higher dollar, which when it rises makes gold more expensive for holders of other currencies.

Spot gold has rebounded nearly 8 percent from last month's low, but remains down 2 percent on the year.

Investor (Stockholm: INVE-A.ST - news) appetite for the metal is a little sharper after July's plunge, with speculators switching to a net long position in COMEX gold contracts in the week to last Tuesday, and some inflows seen into gold-backed exchange-traded funds.

However, holdings of the largest gold ETF remain less than 2 percent above this month's seven-year low, at 677.8 tonnes against 667.9 tonnes.

Julius Baer (Other OTC: JBARF - news) analyst Carsten Menke said stronger demand for gold would need the idea of systemic risk to take hold.

In the short term, gold can suffer when stock markets fall as investors liquidate gold to meet margin calls.

But often the metal tends to rise when stocks are falling as investors seek safety in hard assets.

"People aren't going to go from a bearish environment to being rampant bulls. But there appear to be signs that the market is transitioning again into a bullish phase," Simon Weeks, head of precious metals at the Bank of Nova Scotia (Other OTC: BKSHF - news) , said.

"Clearly the market has been wrong-footed. Everyone was looking for rate hikes and growth and strong equities, and they're not getting that. There's a lot of pain out there." (Editing by Pratima Desai and Susan Thomas)