Gold rose on Wednesday after dipping below $1,600 an ounce as stock markets appeared to have found their footing, but traders said the metal's correlation with volatile equities could trigger more selling.

Mediocre U.S. service-sector and private-employment data followed grim figures on the euro zone's services sector, contributing to a choppy session as investors deliberated over whether bullion is a shelter from turmoil or a speculative trade that will rise with riskier assets.

Ultimately the mildly upbeat mood in stock markets -- which recovered after European officials agreed to shore up euro zone banks against the region's debt crisis -- lifted bullion.

It's starting to look like gold has finally found some stability as the stock markets around the world have stopped tanking, but that can evaporate in five minutes, said Frank McGhee, a head trader at Integrated Brokerage Services LLC.

Spot gold was up 0.5 percent at $1,628.10 an ounce by 12:06 p.m. EDT, off a low of under $1,600.

On Tuesday, bullion fell as much as 3 percent on fears of a potential Greek default and a bleak assessment of the U.S. economy from the Federal Reserve.

When people saw gold's correlation with equities go from inverse to positive, there was more fear that maybe gold has become too frothy in the near term, said Adam Klopfenstein, senior market strategist of futures broker MF Global.

U.S. gold futures for December delivery were up $14.30 at $1,630.40 an ounce, with volume sharply below the norm, as traders braced for more volatility after gold's sharp pullback from a record above $1,920 an ounce set in September.

Independent investor Dennis Gartman said gold's drop on Tuesday had severely damaged investor psychology.

We fear that all of the liquidation has not run its course. We fear that one or two or more large hedge funds have yet to be forced from their gold positions, Gartman said.

Even though bullion had dropped as much as 20 percent from its record, gold-backed exchange-traded funds have not seen significant outflows, suggesting ETF investors have played no significant role in the slump, Commerzbank said in a note.

Frank Holmes, chief investment officer of U.S. Global Investors, said gold is due a rally after a healthy correction largely driven by a resurgent dollar.

Silver was up 1.1 percent at $30.25, after having fallen as much as 5 percent to a low of $28.40 an ounce.

Spot platinum fell 1.1 percent to $1,448.50 an ounce, while palladium turned higher, up 0.5 percent at $552.72 an ounce.