Gold and silver bars are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011.
Gold and silver bars are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna August 26, 2011. Reuters

Gold regained strength Tuesday as bargain hunting resurfaced after prices dropped more than 2 percent in the previous session, but higher equities and easing U.S. recession fears could limit gains.

The physical market saw demand from jewelers as prices remained below all-time highs, while the top consumer, India, was expected to step up purchases before the wedding season resumes in September.

Spot gold added $3.88 to $1,791.13 an ounce by 0504 GMT (1:04 a.m. ET). Trading was volatile last week, when gold tumbled more than $200 toward $1,700 after striking a record at $1,911.46 as investors sought refuge from the euro zone debt crisis, weakness in the U.S. economy and volatile currencies.

I think you can say the market is trying to stabilize and is in some kind of consolidation mode. $1,780 is support and then $1,850 will the resistance level. There's a little bit of bargain hunting, Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, told Reuters.

Toward September, jewelers pick up (buying) positions. Festivals give gold a little bit of support for the time being. The premiums are increasing due to some demand. There's not much sales of scrap around.

Hong Kong dealers quoted premiums for gold bars as high as $1.50 an ounce to spot London prices, from $1.20 last week. Bullion markets were closed in Singapore, Indonesia and Malaysia for the Muslim Eid al-Fitr festival.

The festival season in India has started and will peak in October before tapering off in December. In India, gold jewelry is an essential wedding gift.

Physical dealers in Tokyo saw selling from local investors, but they also noted buying interest from China, where demand for jewelry increases during the Mid-Autumn festival in September.

U.S. gold rose $2.7 to $1,794.3 an ounce, but investors closely watched equities markets, which gained on better-than-expected U.S. consumer spending data and a bank merger in debt-ridden Greece.

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.

Global equities have rallied on hopes the Federal Reserve might eventually launch a third round of quantitative easing (QE3) after Fed Chairman Ben Bernanke left the door open for further action in a speech on Friday.

The Fed is caught between a struggling recovery and high unemployment on one side, and political pressures against more monetary easing on the other. It has already pushed interest rates close to zero and bought $2.3 trillion in bonds to try to lower longer-term borrowing costs.

Given the high inflation environment or rising inflationary environment, I think, it's likely that they won't announce the QE3, said Natalie Robertson, a commodities strategist at ANZ.

In terms of fundamentals, (gold) still looks good. The only risk to the downside is if the CME raises margin requirements again.

The CME Group raised margins on gold futures by about 27 percent last week, the biggest hike in more than two and a half years and the second increase in a month, as gold prices fell sharply after a record-setting rally.

Investors await U.S. consumer confidence data for August and minutes from the Federal Reserve's last committee meeting on Aug. 9 for more clues on divisions among board members over further stimulus measures.

In the energy market, Brent crude rose for a sixth straight session on Tuesday, buoyed by strong data from the United States that allayed fears the world's top oil consumer was sliding back into recession and a landmark bank merger deal in Greece.

(Reporting by Lewa Pardomuan; Editing by Clarence Fernandez)