Gold prices rose back above $1,500 an ounce in Europe on Tuesday as risk aversion returned to the financial markets, stoked by concerns over the outlook for the Chinese economy and plans to roll over Greek debt.

Spot gold was bid at $1,502.39 an ounce at 1110 GMT, against $1,495.54 late in New York on Monday. US gold futures for August delivery rose $20.50 an ounce to $1,503.10.

Media reports about a possible rate rise in China and a Moody's report saying the scale of problem loans at local governments there may be much bigger than previously thought dented risk appetite, which had returned to the markets last week after Greece approved austerity measures.

"Certainly the Chinese stories this morning have helped (gold)," said Credit Suisse analyst Tom Kendall.

"We have seen a bit of buying coming back in from some of the institutional names that have been absent for a while, and positioning in gold is a lot less from shorter-term players than it has been.”

Meanwhile, the premium investors demand to hold Spanish and Italian debt crept up and the cost of insuring peripheral debt against default rose on weak economic data and persistent worries over the impact of a Greek debt rollover.

Worries over mounting debt levels in euro zone economies like Greece, Ireland and Portugal were a key factor driving gold to record highs above $1,575 an ounce in May. Relief after Greece secured a 12 billion euro loan to avert default helped allay some of those concerns last week.

But they persist, with Standard & Poor's warning on Monday it would treat a rollover of privately held Greek debt now being discussed as a selective default. Below forecast euro zone PMI data boosted risk-averse sentiment on Tuesday.

The dollar firmed against the euro as deteriorating euro zone data and concern over the health of the Chinese economy pushed investors towards currencies perceived to offer safety.

Usually this would weigh on gold, but its value as a haven from risk is outweighing the effect of the stronger US unit.

Asian gold buying picks up

Asian gold demand firmed after prices slid below $1,500 an ounce, with buying picking up in Thailand after Sunday's election and premiums rising in Singapore. Indian and Chinese buyers -- the world's top gold consumers -- were also seen in the market, though seasonal factors muted buying.

With physical demand set to remain lacklustre during the seasonally quiet summer months, and investors sill digesting moves to shore up the troubled euro zone and the end of US monetary easing, gold is set to stay in consolidation mode.

"Gold will need to search for new sources of inspiration to move higher, in our view, as the markets contemplate a world without quantitative easing," said Deutsche Bank in a note.

"However, we expect a weak US dollar, negative real interest rates and ongoing central bank diversification into gold will sustain a constructive outlook for the sector."

Data released by the International Monetary Fund showed on Tuesday that Greece and Tajikistan marginally increased their gold reserves by 0.03 tonnes and 0.05 tonnes respectively in May, while Mexico sold 0.19 tonnes.

Among other precious metals, silver was bid at $34.64 an ounce against $34.08, spot platinum was bid at $1,724.50 an ounce versus $1,718.55, and spot palladium  was at $760.53 an ounce against $757.45.

The world's biggest carmaker, Toyota , said its Chinese auto sales fell by 2.4 percent in June from a year earlier. General Motors and its China joint ventures saw a 9.9 percent rise in sales in the same period, it said.

The health of the car sector is a key driver for platinum group metals, which are used in autocatalyst manufacturing.

"The PGMs did well to virtually shrug off poorer-than-expected June US auto sales of 11.4 million units, well below consensus of 11.9 million units and lower than May's 11.8 million," said UBS in a note.

"The decline was driven by continued inventory shortages and a recently implemented California sales tax break, effective July 1. Our auto analysts deem the June result to be a temporary effect of Japan's earthquake and note that overall fundamentals remain strong for the full year." – Reuters