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SYDNEY, June 5 (Reuters) Gold rose nearly 1 percent on Monday as renewed inflationary concerns fuelled by rising oil prices drove investors back into the metal.

The gains were made in light-volume trading and pulled the metal close to its next technical resistance level of $645 an ounce, dealers said.

Gold had fallen out of favour in recent weeks after hitting a 26-year high of $730 an ounce on May 12 as investment funds and speculators sold out for profits on expectations the U.S.dollar would strengthen.

''That happened, but that was yesterday,'' a dealer said.

''Now we've got the dollar going down and oil going up, which raises talk of inflation.'' Gold, seen by some as insurance against inflation, has been fluctuating with the U.S. currency.

The metal has fallen more than $110, or 15 percent, since its May 12 peak. The all-time high was $850 an ounce in January 1980. But it is still up around 22 percent this year.

Spot gold was quoted at $642.50/$644.00 an ounce at 0226 GMT versus $640.75 at the Sydney open and $637.30 in late trade on Friday.

A breach of the technical resistance barrier of $640 an ounce in early trading in Australia and news that one of the country's biggest mines was under-performing lent initial support to bullion markets, dealers said.

Newcrest Mining Ltd. said the rate of production at its redeveloped Telfer mine had been affected by varying ore types and grades, leaving the company unable to give a firm estimate of full-year production. The company previously put annual output at 700,000 ounces.

The dollar was mired near a one-year low against the euro after surprisingly soft U.S. employment data last week helped dent expectations for the Federal Reserve to raise rates.

The dollar was buying at 111.58 yen versus 111.75 yen in late New York trade on Friday.

The euro was at $1.2936 not far from the one-year peak of $1.2972 struck in mid-May.

Oil prices climbed over a dollar to above $73 on Monday after Iran hinted it might use oil production as a weapon in its nuclear dispute with the West and hitches at U.S. refineries spurred worries over fuel supplies.

Spot silver was at $12.26/$12.36 an ounce versus a late New York quote Friday of $12.11.

Spot platinum was at $1,248/$1,250 an ounce versus $1,239.

Spot palladium was at $351/$358 an ounce versus $346.

REUTERS CS RN1109