Gold rose in Europe on Monday, rebounding from Friday's three-month low, as the dollar weakened against the euro, encouraging investors to buy into the metal at lower prices.

Spot gold was at $1,070.85 an ounce at 1006 GMT versus $1,065.55 late in New York on Friday. In that session it slid to $1,043.75, its lowest since November 2, as the euro fell on fears over the outlook for some smaller euro zone economies.

'We are having a bit of a run-up, helped by euro/dollar strengthening a little post the weekend G7 meeting,' said Calyon analyst Robin Bhar.

'There has been a bit of bargain hunting at the lows,' he added. 'We fell to nearly $1,040 on Friday, so that has seen a bit of trade interest and some investor positioning emerging, which has given a boost to the market.'

US gold futures for April delivery on the Comex division of the New York Mercantile Exchange rose $19.20 to $1,071.40 an ounce.

The dollar slipped versus the euro on Monday as the single currency pared losses, but stayed close to multi-month lows on fears about the outlook for some euro zone countries.

A two-day meeting of the Group of Seven ministers and central bank governors in northern Canada this weekend was capped by reassurances about debt-strapped Greece and agreement that banks should pay for future rescue funds.

But dealers said investors were disappointed the meeting did not result in concrete action to tackle sovereign debt issues in countries such as Greece, Portugal and Spain.

Concern over the outlook for smaller euro zone economies was a major driver of the sharp rise in risk aversion late last week, which saw hefty selling of the euro and assets perceived as higher risk, such as equities and commodities.

Gold's price drop prompted some fresh interest in the metal, with the world's biggest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reporting its first inflow since December on Friday.

From a technical perspective, resistance near the $1,050 level held on Friday, preventing a move down towards the 200-day moving average near $1,020 an ounce. A breach of this area would lead to a sharper sell-off, analysts said.-Reuters