Gold regained strength on Tuesday as bargain hunting resurfaced after prices dropped more than 2 percent in the previous session, but higher equities and easing worries about recession in the United States could limit gains.

FUNDAMENTALS

* Spot gold added $1.34 to $1,788.59 an ounce by 0014 GMT. Last week, prices were highly volatile sliding more than $200 from a record $1,911.46 an ounce, dropping towards $1,700.

* U.S. gold rose $2.0 to $1,793.6 an ounce.

* The Nikkei rose 1.3 percent on Tuesday after U.S. stocks surged on strong consumer spending data and a merger between two big Greek banks which provided relief in debt-stricken Europe.

* U.S. consumer spending rose at its fastest pace in five months in July, a further sign the economy is not falling back into recession, although manufacturing activity in Texas almost stalled this month.

MARKET NEWS

* Stocks rallied on Monday along with oil after a merger between two major banks in Greece gave investors a rare bit of encouraging news out of Europe.

* Brent crude rose a fifth straight session on Monday as equities rallied on a rise in consumer spending and strong financials.