By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold reversed early losses on Monday to trade higher for a second straight session, supported by strong buying from top consumer China, which offset a firm dollar.
The dollar index, a measure of the greenback's strength against a basket of six major currencies, rose to a nine-year high as the euro tumbled to its lowest level since 2006.
A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies, discouraging buying and also decreasing the metal's appeal as a hedge.
But China came to gold's rescue on Monday, with prices in the country trading at higher premiums than last week.
"We opened lower because of the euro. But with the Shanghai opening, prices turned positive," said a precious metals trader in Hong Kong, adding that the gains may not hold when European traders step in.
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"I would be cautiously long in Asian hours and would be looking to square positions in Europe opening."
Spot gold had risen 0.7 percent to $1,197.30 an ounce by 0727 GMT after dropping as much as 0.5 percent in early Asian hours.
Prices on the Shanghai Gold Exchange were about $7 an ounce higher than the global benchmark, an indication of good demand. Premiums were about $4-$5 last week.
Chinese buying has picked up in recent weeks ahead of the Lunar New Year holiday in early 2015, when gold is bought for good fortune and to be given as gifts.
Demand is likely to stay strong until the holidays on Feb 19-20.
Traders were also watching the foreign exchange market.
The euro fell to a nine-year low against the dollar on Monday, given the prospect of more monetary easing by the European Central Bank.
The dollar also surged against the Swiss franc and sterling, extending its bull run as markets wagered that a relatively healthy U.S. economy would lead the Federal Reserve to raise interest rates sooner than other major central banks.
Among other precious metals, silver rose 2 percent, while platinum and palladium were up about 1 percent.
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford, Alan Raybould and Anupama Dwivedi)