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Gold rises amid Portugal debt concerns Add to ...

Gold rose on Monday, ending a week of sharp losses, as worries over Portugal's debt boosted safe-haven demand for the precious metal while a softer dollar helped its role as an inflation hedge.

Higher demand for gold from top consumer India - following last week's price drop - also helped the rebound.

Gold posted its largest weekly loss in more than seven months last week as the dollar rallied on better-than-expected U.S. data, which raised expectations for tighter monetary policy soon in the United States.

But signs at the weekend that Portugal was being forced by other euro zone members to solve its debt woes soon reignited concerns over European sovereign risk, luring some money away from the dollar into gold, traders said.

"Beyond this short-term correction, we continue to hold a positive view of the gold price for the balance of 2011," said Anne-Laure Tremblay, precious metals analyst at BNP Paribas in London. "Sovereign risk will remain a key theme for gold in 2011."

A senior euro zone source said on Sunday pressure was growing on Portugal from Germany, France and other euro zone countries to seek financial help from the European Union and International Monetary Fund to stop the bloc's debt crisis from spreading.

When risk aversion grows in the euro zone, it can lift the appeal of both the dollar and gold. Last year the usual negative correlation between gold and the dollar weakened at times when the euro zone crisis flared up, notably in the second quarter.

The euro rebounded from a four-month low against the dollar on Monday on speculation that Portugal would have to seek debt aid soon.

A softer dollar typically helps gold because it makes the metal more affordable for holders of the euro and other currencies.

Spot gold hovered at around $1,375 an ounce in New York late on Monday, versus Friday's comparative quote of $1,368.80.

U.S gold futures for February delivery settled up $5.20, or 0.4 per cent, at $1,374.10 an ounce.

INDIAN BUYERS ATTRACTED

Traders said gold prices were also helped by stronger physical demand for bullion in India, the world's biggest jewelry market.

Traders said Indian buying of gold picked up after last week's price drop. They said gold merchants were stocking up ahead of the country's upcoming harvest festival and wedding season, which marks a traditional peak period for gold demand.

Despite the higher physical demand, interest in gold-backed exchange-traded funds (ETFs) remained damp. Holdings in the largest gold ETF, New York's SPDR Gold Trust, dropped by 1.5 tonnes, latest data showed.

Societe Generale said in a weekly note that buying by exchange-traded funds had been markedly slower as prices rose recently to above $1,400 an ounce. But it said demand for "over-the counter" investments in gold was robust "and there are clear indications that this demand will remain strong this year."

Holdings of the largest silver ETF, the iShares Silver Trust, fell more than 53 tonnes. Spot silver was at $29 an ounce versus $28.69 on Friday.

Platinum was above $1,738 an ounce, from $1,731 previously, while palladium hovered around $751 from $748.50 on Friday.

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