NEW YORK/LONDON (Reuters) - Gold futures trimmed losses but still ended lower on Monday 31 August, as risk-averse investor sentiment and a tumbling Chinese equities market prompted selling in bullion and other commodities.

The positive link between gold and equities market has been on the rise, as the metal is used as a hedge against inflation and erosion of portfolio values.

"The markets today are focusing on China and the sharp break of the Shanghai equities index," said Bill O'Neill, managing partner of New Jersey-based LOGIC Advisors.

"In recent weeks, we noted the weakness in the equities, of course, has had a positive relationship with commodities, and that continued to be a factor," he said.

Global stocks fell on Monday 31 August, dragged by a six percent tumble in China, which sent nervous investors into the yen for safe haven. Wall Street was off about 1 percent in afternoon trade.

U.S. December gold futures settled down $5.30 at $953.50 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold was at $951.70 an ounce at 2:03 p.m. EDT (1803 GMT), against $954.45 an ounce late in New York on Friday 28 August.

Weakness in oil prices, which fell over $3 to under $70 per barrel, and a sharp rise of the yen against the dollar amid risk aversion, are both weighing on gold.

Afshin Nabavi, head of trading at MKS Finance, said price volatility had also been exacerbated by holiday-thinned trade, with the London market closed for the bank holiday.

Gold typically trades in a close negative relationship with the dollar, as it is often bought as an alternative investment. Like all dollar-priced assets, it also becomes cheaper for holders of other currencies as the U.S. unit softens.

Meanwhile, a report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades also struck a nerve among metals traders.

James Steel, chief commodities analyst at HSBC in New York, said that the news "played an element" in weighing down on gold.

JEWELRY DEMAND IN FOCUS

The precious metal is taking little direction from underlying demand or supply issues over the seasonally quiet summer period, analysts said.

Frank Holmes, chief executive of U.S. Global Investors, said that while gold has historically risen in the month of September on the back of strong global jewelry demand, it could be challenging this year due to the economic slowdown and the high price of bullion.

Texas-based U.S. Global manages over $2 billion in fund assets.

Silver, meanwhile, turned higher due to strong demand from Asia, analysts said. Silver, which is a largely industrial metal, has recently outperformed gold on the back of better economic sentiment.

Holdings of the world's largest silver-backed ETF, the iShares Silver Trust, also fell almost 82.6 tonnes, or 1 percent, last week. Spot silver was at $14.87 an ounce against $14.74.

Platinum prices were a touch softer, pressured by a decline in prices of industrial commodities such as oil. Platinum was at $1,236 an ounce against $1,244, while palladium was at $289 against its previous finish of $287.

(Reporting by Frank Tang and Jan Harvey; Editing by Marguerita Choy)