(REUTERS) -- Gold firmed in Europe on Monday, rising back above $1,640 an ounce, as a recovery in stock markets and the euro took some downward pressure off prices, with traders digesting last week's mass downgrade of euro zone countries from Standard & Poor's.

The single currency lifted from the near 17-month low it hit against the dollar in early trade, while European stock markets swung into positive territory. Oil prices also tracked higher..EU

Spot gold was up 0.1 percent at $1,641.50 an ounce at 1007 GMT, while U.S. gold futures for February delivery were up $11.40 an ounce at $1,642.20. Prices are still up 5 percent this month but fell 0.6 percent on Friday as the euro tumbled after the S&P downgrade.

Gold's relationship to bad news on the euro zone debt crisis has been choppy in the last year, with the metal sometimes benefiting from fears over currency debasement, sometimes falling victim to a rising dollar.

Gold is not a hedge against problems in the euro zone, at least as far as the debt situation is concerned. That might look different in the worst case scenario, said Peter Fertig, an analyst at Quantitative Commodity Research.

Currently gold is moving along with... exchange rate movements, but also crude oil and stocks markets, particularly the S$P 500 index, he said.

Stocks and the euro fell in early trade after rating agency Standard & Poor's downgraded nine of the euro zone's 17 countries on Friday, with France and Austria losing their top-notch status.

Mass euro zone ratings downgrades are unlikely to shake up investors too much, but with Greek debt talks at an impasse, pressure has been loaded on the bloc to build up its defenses and last week's glimmers of optimism have been firmly doused.

Talks between Greece and its creditor banks to cut back on its debt ended without agreement on Friday, pushing Athens closer to default. Greek Prime Minister Lucas Papademos said on Monday he was confident a deal on a debt swap plan would be reached.

If these talks do not make progress gold could come under further pressure, said HSBC in a note.

INDIAN DEMAND EASES

Money managers cut bullish exposure in gold futures and options in the week ended January 10, leaving net length at its lowest level in nearly two years, according to data from the U.S. Commodity Futures Trading Commission.

On the physical side of the market, gold buying was lackluster in main consumer India after harvest festival season and as prices rose for a second session.

The head of India's biggest jewelry retailer said on Sunday that gold jewelry demand in India is estimated to have risen 5 to 7 percent in 2011 and is set to grow a further 10 to 15 percent this year, with bullion prices falling back after recent gains.

Jewelry sales in Italy, Europe's biggest gold jewelry exporter, fell sharply in 2011 and were expected to remain depressed in 2012 as the debt crisis and the government's austerity measures hit consumer demand, senior industry officials said on Sunday.

European demand has been hit by rising prices and economic concerns, which have hurt consumer confidence. People don't know if they should spend money or save, said Giuseppe Aquilino, chairman of Italy's federation of jewelry retailers Federdettaglianti Orafi.

Silver was up 0.6 percent at $29.91 an ounce, broadly tracking gold. Spot platinum was up 0.5 percent at $1,486.99 an ounce, while spot palladium was up 1.8 percent at $636.97 an ounce.

The gold:platinum ratio - which measures the number of platinum ounces needed to buy an ounce of gold - stood at 1.11 on Monday, up from 1.10 on Friday but well off the high of 1.15 it hit earlier this month.