By Susan Fenton
LONDON (Reuters) - Gold rose on Tuesday as shares resumed falls, and was just below the 7 1/2-month high struck the previous day after growing concerns about the global economic outlook sent investors into safer assets.
The precious metal saw some profit taking in early trade after failing to push through key psychological resistance at $1,200 an ounce, but picked up after U.S. markets opened and looked set to retest the $1,200 level.
Spot gold was trading up 0.5 percent at $1,196.9 an ounce by 1307 GMT, after rising to $1,200.60 on Monday, its strongest since June 22 last year.
"Once again buying has resumed. If we can reach $1,200 and hold above it that would probably set the scene to go higher," said David Govett, head of precious metals, at commodities broker Marex Spectron.
The fact that gold turned positive after U.S. markets opened suggested exchange-traded funds, which are mostly U.S.-based, were buying, he said.
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Gold has gained 7 percent since the start of last week on rising demand for assets deemed to be less risky.
Strong demand for safe assets was underscored on Tuesday when the yield on Japan's benchmark 10-year government bond turned negative for the first time as the Nikkei stock index tumbled more than 5 percent, its biggest daily drop in nearly three years.
Fears that the global economy could slow sharply, or even tip into recession, and worries about some banks have battered share markets in recent days. European shares turned lower on Tuesday, after steadying in early trade, with the pan-European FTSEurofirst 300 falling to their lowest in more than two years, after skidding 3.4 percent on Monday.
Gold, which is now up nearly 13 percent this year, reversing last year's 10.4 percent loss, has benefited as some weak economic data recently prompted financial markets to scale back expectations for U.S. interest rate rises this year.
Markets will be watching for any clues on monetary policy when Federal Reserve Chair Janet Yellen is due to appear before the House Financial Services Committee on Wednesday.
U.S. gold for April delivery was down 0.1 percent at $1,196.5 an ounce.
Underlining gold's rising appeal, holdings in eight major gold exchange-traded funds (ETFs) rose to 43.3 million ounces on Friday, the highest since July 2015.
More significant was the rapid pace of inflows since the start of the year, having risen more than 8 percent and the biggest five-week surge since March 2011.
"We remain quite upbeat on gold's prospects over the short term given the continued unease surrounding the global equity markets, the weaker dollar and gold's much stronger technical profile," INTL FCStone analyst Edward Meir said in a note.
The next stop for gold could be $1,205/$1,215 and further to $1,235, said Meir.
China's markets are closed for the Lunar New Year holiday this week, dampening demand for gold.
Spot silver was up 0.1 percent at $15.32 an ounce, near Monday's three-month high of $15.46. Platinum was up 0.4 percent to $925.05 an ounce, also near a three-month peak of $931.76 reached overnight. Palladium slipped 0.5 percent to $510.47 an ounce.
(Additional reporting by Manolo Serapio Jr. in Manila; Editing by Louise Heavens and Mark Potter)