Gold held within reach of record highs in Europe on Friday as buyers looked to it as a haven against persistent fears of sovereign risk in Europe and after lackluster U.S. data raised doubts over wider economic recovery.

The precious metal's gains were limited, however, as immediate concerns over the euro's outlook were allayed by solid demand at Spanish bond auctions, which eased fears about the government's debt-servicing ability.

Spot gold was bid at $1,244.65 an ounce at 1017 GMT, against $1,243.40 late in New York on Thursday. U.S. gold futures for August delivery eased $2.30 to $1,245.40.

Prices had reached $1,250.65 on Thursday, close to the record $1,251.20 of last week. Its move came despite a rise in the euro, weakness in which has lifted gold this year as investors bought the metal as an alternative to paper currencies.

The main driver behind gold is not the currencies; it is the underlying fundamental problems, especially here in Europe, said Commerzbank analyst Daniel Briesemann.

Gold should rise further. It increased significantly yesterday. On a closing basis, gold in U.S. dollars reached a record high and intraday we were only $1 below the record high.

He said the prospect of publication of European bank stress tests was unsettling some market participants amid fears these could point to deeper problems in the financial sector.

European leaders agreed on Thursday to publish details of stress tests showing the health of individual banks next month and to toughen budget rules to restore confidence in the currency union.

The euro held at three-week highs, on track for its second straight week of gains, while the dollar appeared vulnerable to further losses after falling below a key chart level in the wake of a raft of below-forecast U.S. economic data.

European shares initially firmed, rising for the eighth straight session after Wall Street shares eked out modest gains, although later turning negative. .EU

U.S. stocks staged a late recovery on Thursday after earlier declining as weak reports on regional manufacturing and jobless claims underscored worries about the pace of the economic recovery. .N


Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, hit record highs at 1,307.963 tonnes on Thursday as investors continued to turn to physical bullion as a haven from risk.

Among other precious metals, silver rose to $18.70 an ounce from $18.67, slightly outperforming gold, after the metal hit a four-week high of $18.86 an ounce on Thursday.

The gold:silver ratio fell to its lowest since late May on a day-to-day basis, with one ounce of gold now buying 66.4 ounces of silver. Silver, a smaller and more illiquid market than gold, tends to outperform the yellow metal when prices are rising.

If both gold and silver continue to improve, we expect silver to outperform, thus moving the gold-silver ratio lower, said ScotiaMocatta in a note.

Among other precious metals, platinum was at $1,562.65 an ounce against $1,574, while palladium was at $472.73 against $479.50.

The world's biggest palladium producer, Norilsk Nickel (GMKN.MM), said it had received an offer for some of its Australian assets, and that it planned to proceed with plans to divest them.

(Editing by Jane Baird)