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NEW YORK/LONDON (Reuters) - Gold rallied on Tuesday after a ratings downgrade of Greece reignited fears of a worsening fiscal crisis and lifted interest in the metal as a shield against instability in the wider markets.
Spot gold moved up to $1,233.55 an ounce by 3:30 EDT, against $1,220.15 late in New York on Monday. U.S. gold futures for August delivery finished $9.90 higher at $1,234.40 an ounce, after earlier touching its a one-week peak at $1,237.
Analysts said the Moody's downgrade of Greek government debt ratings to junk was not unexpected, but it reminded investors Europe's debt crisis was not over. Medium-term concerns over fiscal stability are likely to fuel further gains in the metal, they added.
"We have got a lot of potential market disruption risk this year -- sovereign risk from Europe, fiscal tightening, at some point monetary tightening, and regulatory risk as well," said Michael Lewis, head of commodity research at Deutsche Bank.
"There are a number of external events that could be quite positive for gold." But he added he expected the pace of gains to slow from the rate seen from the end of April.
In New York, Rick Bensignor, chief market strategist at Execution Noble Llc said Tuesday's move up was likely currency related along with renewed gains in U.S. stock markets.
"I have not re-initiated a new long, but seeing that gold's not breaking down makes me feel it's hanging in there nicely. If it can do that when the dollar's come off, it makes me think that it has better chances of moving higher," said Bensignor.
Noting gold has also spent a fair amount of time this year following the S&P, he said, "with the market having moved up in the last several days gold managed to hold in there and gets an up move also."
European and U.S. shares moved higher, boosted by strong demand for Irish and Spanish government debt and U.S. data showing inflation remained under control.
U.S. stocks extended gains as semiconductor shares rose and energy stocks were lifted by bets the sector has seen the worst of the selling.
The euro rose hitting a two-week high against the U.S. dollar after solid demand at European debt auctions soothed some worries about euro zone debt problems.
A stronger euro, and consequently weaker dollar, typically benefits gold, although the relationship has weakened this year as sovereign risk issues in the euro zone knocked the single currency while lifting bullion's appeal as a haven.
Physical demand for gold firmed a touch in Asia as prices slipped from record highs. Sales of scrap in the world's number one consumer, India, subsided although domestic prices were within sight of record levels.
Firm demand for physical bullion from investors also kept holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, at record highs above 1,306 tonnes on Monday.
From a technical perspective, the outlook for the precious metal is positive, said chartists.
"The metal spent the last three days consolidating between $1,215 and $1,238, and probability now lies with the bullish trend for another attempt on its record high," said ScotiaMocatta in a note.
Bensignor pointed out COMEX August gold has been held its 20-day moving average for 3 days in a row, trading down to the average and then holding it.
"That's not definitively a breakout, but it is bullish. A daily close above $1,250.50 is definitely bullish," he said.
Silver jumped to $18.55 an ounce against $18.16.
The ratio of gold to silver -- how many ounces of silver are needed to buy an ounce of gold -- fell to a two-week low on Tuesday near 66:1, showing the metal is becoming increasingly expensive compared with gold.
Platinum moved up to $1,569.50 an ounce against $1,557, and palladium surged to $470.0 from $456.0.
The platinum group metals, which are primarily used in catalytic converters, are particularly sensitive to developments in the automotive sector, which Morgan Stanley upgraded to "attractive" from "in-line".
Reporting by Carole Vaporean;Editing by Sofina Mirza-Reid