Gold firmed on Wednesday on bargain hunting driven by persistent worries that debt problems in Europe were worsening, but rising stock markets could still spur a shift to riskier assets.

The physical sector saw buying from jewelers and speculators in Thailand, while top consumer India was chasing gold bars whenever there was a drop in prices, dealers said.

Spot gold was at $1,233.65 an ounce by 0425 GMT, up $1.20 from New York's notional close on Tuesday, when investors poured money into the metal following a sovereign ratings downgrade of Greece.

Gold, which hit a lifetime high of $1,251.20 last week, was likely to consolidate within a wide range of $1,220 to $1,250 before charging higher.

I think the upside for gold is still very strong in terms of safe haven flows, said Wong Eng Soon, investment analyst at Phillip Futures in Singapore.

There seems to be a preference for large funds to be long on volatility, take on more downside protection and be less correlated with wider markets. This suggests risk aversion is still prevalent.

Holdings in the world's largest gold exchange-trade fund have been unchanged at record levels in the last four sessions, which suggests that investors are keen to hold on to bullion because of lingering concerns about the euro zone's financial sector.

U.S. gold futures for August delivery added $1.2 an ounce to $1,235.6 after ending up nearly $10 on Wednesday.

Surprisingly we've seen some physical buying from Thailand. That's the highlight of the day. I think consumers will continue to buy gold on dips, said a physical dealer in Singapore.

People are still confident on gold more than anything.

The euro steadied near two-week highs on Wednesday, while demand for high-yielding currencies was underpinned by a general improvement in risk taking.

Japan's Nikkei average rose more than 2 percent on Wednesday after successful debt sales by some of the weakest euro-zone members boosted the euro and Wall Street. .T .N