(Reuters) - Gold rallied on Tuesday, boosted by a rise in the euro against the dollar after the price hit its lowest in nearly six months last week in a flurry of year-end speculative selling.

Mounting tensions between Iran and the United States over a possible disruption to oil supply boosted crude oil futures but did little to elicit any safe-haven buying of gold, which remains tightly tethered to the ebb and flow of the euro.

Gold's correlation with the euro/dollar exchange rate is at its most positive in nearly two years, meaning the bullion price is more likely to move in lockstep with the euro than at any other time since January 2010.

German Bund futures slipped but the debt crisis was expected to limit falls as refinancing pressure grows on the bloc's lower-rated sovereigns, while the euro edged higher after better-than-expected Chinese data boosted riskier assets.

Speculators placed their heaviest bets ever against the single European currency last week, in light of the lack of a lasting solution to the euro zone debt crisis and the knock-on effect on the regional economy.

Spot gold was last up 1.7 percent at $1,591.84 an ounce by 1300 GMT (8 a.m. EST), set for its largest one-day rise since mid-December.

Gold didn't really react to the safe-haven issue in Iran that much. Oil has, obviously, but you haven't really seen that safe-haven, geopolitical risk investor come in at all really so far, RBS commodities analyst Nikos Kavalis said.

I would say it all really depends on the euro for the time being. This is really where gold takes its cue from.

Military exercises in the Mideast Gulf by Iran and the movement of U.S. naval vessels in the area have raised fears of a confrontation between Tehran and Washington that could cut off oil exports from the region.

Iran has said it could shut the Strait of Hormuz, through which 40 percent of world oil is shipped, if sanctions were to be imposed on its crude exports.

EURO FOCUS

Meanwhile, in Europe, France's Nicolas Sarkozy will meet German Chancellor Angela Merkel in Berlin on January 9 for talks that are likely to centre on new rules to enforce budget discipline across the European Union.

The two leaders are anxious to flesh out a plan agreed at a December summit by all EU members except Britain for a new treaty to forge closer fiscal integration, as Europe battles to stem a sovereign debt crisis in the euro zone.

The gold price rose by a net 10.2 percent in 2011, but the resulting strength of the U.S. dollar from the euro zone debt crisis whittled this increase down from a gain of as much as 33 percent, when gold hit a record $1,920.30 in early September.

A strong dollar encourages non-U.S. gold holders to sell their bullion holdings in order to make a profit when buying their own currencies more cheaply.

The euro could rebound in the near-term despite the problems affecting continental Europe, as investors are overly bearish on the currency, investor Jim Rogers said on Tuesday.

Rogers, who co-founded the Quantum Fund with George Soros in the 1970s and is a well-known commodities bull, also said he remains bullish on commodities in general but expects gold will drop further given the run-up over the last 10 years.

In my view, gold could go to $1,200-$1,300 (an ounce)... Gold has been up 11 years in a row which is extremely unusual in any financial asset so gold is overdue for a correction, he told Reuters Insider in Singapore where he now resides.

Another short-term risk to the gold price in early January is the rebalancing of commodity indices, which may result in fund investors needing to hold less gold in their portfolios.

Short-term there is the risk of further pressure as fund repositioning and Index re-balancing commences, however, improved physical interest is likely to provide good support, Fastmarkets analysts wrote in a note.

In other precious metals, silver rose 3.4 percent to $28.75 an ounce, while platinum rose 0.6 percent to $1,402.24 an ounce and palladium rose 0.9 percent to $656.50.