Gold slipped on Wednesday as the dollar rose and doubts about Italy's ability to tackle its debt problems persisted even after Prime Minister Silvio Berlusconi pledged to resign, paving the way for a new leader to implement reforms.

The Italian Prime Minister said he would leave office after parliament passes budget reforms. A failure by Italy to fix its debt problems would have a far bigger impact on the region than difficulties in Greece. 

Gold fell 0.2 percent to $1,781.94 an ounce by 1000 GMT from $1,784.85 late in New York on Tuesday, off Tuesday's high of $1,802.60 -- its strongest since late September.

The euro slipped as the dollar rose across the board after investors' confidence in Italy's fragile debt situation was dealt a blow when Paris-based clearing house LCH.Clearnet boosted the margin requirements for Italian bonds.      

A stronger dollar makes commodities priced in the US unit more expensive for holders of other currencies.

Highlighting the market's worries, the yields on 10-year Italian bonds hit 7 percent, a level at which countries including Portugal and Ireland were forced to ask for financial help.

"The market is extremely worried. Changing leaders both in Greece and Italy doesn't change the fiscal situation and leaves us with a period of uncertainty," said Ole Hansen, senior manager at Saxo Bank.

"The euro is weakening again, and that seems to be taking a bit of support out of gold. There is potential for some risk coming off the table again, and it is during that situation that we have to see how gold reacts."     

Keeping concern about the debt crisis alive, a plan for former European Central Bank vice-president Lucas Papademos to lead a Greek government of national unity has run into trouble, party sources said, prolonging the political hiatus as the country heads towards bankruptcy.

Gold hit a record around $1,920 in September on worries about a growing debt crisis in Europe and is trading more than 25 percent higher in the year to date. Spot gold prices have rallied around 4 percent so far this month as mounting doubts over the euro zone's ability to tackle its two-year-old debt crisis drove investors to safe-haven assets and decoupled gold from other commodities, which it had followed through much of the past two months.

US gold fell 0.9 percent to $1,783.50 an ounce. "The market is now running into the first technical resistances around $1,800 and the rally could slow down a little bit from here," Credit Suisse said in a note. 

Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust , gained 0.67 percent from Monday to Tuesday, while those of the largest silver-backed ETF, New York's iShares Silver Trust , dipped 0.12 percent for the same period. - Reuters