Gold prices rebounded 1 percent on Tuesday from a sell-off in the previous session, as heightened worries about the sovereign debt crisis in Europe remain supportive of safe-haven demand for bullion.

The threat of a potential Greek default and a full-blown banking crisis in Europe triggered a sell-off in equities and the euro in the previous session, before talks that Italy had asked China to buy its debt helped ease the panic.

Investors are watching a meeting between the U.S. Treasury Secretary Timothy Geithner and euro zone finance ministers on Friday to discuss risks posed by European debt contagion.

There is a slow-motion train wreck going on in Europe at the moment, which is going to be relatively supportive of gold, said Nick Trevethan, senior commodities strategist at ANZ.

All the factors that have been supporting gold for the past few months are still there. Nothing has changed. But in the short term, gold could face more downside risk and prices may test as low as $1,750, he added.

Spot gold gained as much as 1.2 percent to $1,835.19 an ounce and eased to $1,823.79 by 0620 GMT, after shedding more than 2 percent in the previous session. U.S. gold GCcv1 rose 0.8 percent to $1,827.90, easing from an intra-day high of $1,838.9.

Technical analysis suggested that gold could decline to $1,759 later in the day, said Reuters market analyst Wang Tao.

 The daily trading range in spot gold increased from an average of $20 in July to $51 in August. In the past few session, gold swung in a range of over $60. The volatility has put off some investors, and led to concerns that exchanges might increase margin requirements to protect themselves from potential default.

There is a possibility of more margin increases going forward. We've seen a lot of $60-plus intra-day moves, which has to be concerning exchanges and clearing houses, said Trevethan. The CME Group raised margin requirements on U.S. gold futures twice in August.

STRONG DOLLAR DETERS PHYSICAL BUYING

As the euro zone debt crisis threatens the integrity of the single-currency bloc, the dollar has risen sharply since the end of August, although the greenback lost 0.6 percent against a basket of currencies after hitting its highest since late February in the previous session.

An expensive dollar makes commodities priced in the greenback less attractive for buyers holding other currencies.

Since the dollar has strengthened, people are not rushing to buy gold even though prices have fallen from the record high, said a Singapore-based dealer. India, the world's largest gold consumer, is gearing for the
festival and wedding season later this month, which will peak in later October.

Dealers reported purchases from India in recent weeks but said the high gold prices in rupees have dented buying interest.

 Precious metals prices 0620 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1823.79 10.54 +0.58 28.49
Spot Silver 40.68 0.47 +1.17 31.82
Spot Platinum 1817.99 16.94 +0.94 2.86
Spot Palladium 713.30 10.80 +1.54 -10.78
TOCOM Gold 4525.00 -60.00 -1.31 21.35 81175
TOCOM Platinum 4542.00 -25.00 -0.55 -3.28 9895
TOCOM Silver 100.10 -1.10 -1.09 23.58 1057
TOCOM Palladium 1791.00 -45.00 -2.45 -14.59 967
COMEX GOLD DEC1 1827.90 14.60 +0.81 28.60 22016
COMEX SILVER DEC1 40.81 0.59 +1.46 31.88 4030
Euro/Dollar 1.3672
Dollar/Yen 76.98

 TOCOM prices in yen per gram. Spot prices in $ per ounce.
COMEX gold and silver contracts show the most active months

 (Editing by Clarence Fernandez)