By Jan Harvey
LONDON (Reuters) - Gold steadied on Monday, giving up early gains as the prospect of a Greek debt default, which hit European shares, was offset by a strengthening dollar and wariness among investors over the metal's longer-term outlook.
European shares tumbled more than 2 percent in early trade and the euro slid as Greeks woke up to shuttered banks and closed cash machines following the collapse of talks between Athens and its creditors.
Gold, which often benefits from uncertainty in the wider financial markets, initially rallied to a near one-week high at $1,186.91, but later gave up some of those gains.
Spot gold was up 0.1 percent at $1,175.86 an ounce at 1354 GMT, while U.S. gold futures for August delivery were up $2.20 an ounce at $1,175.40.
The wider environment remains relatively unfriendly for gold, with the United States still likely to raise interest rates at some point this year. That would increase the opportunity cost of holding non-yielding gold.
"Gold historically has always been the safe, tangible commodity which had appeal in times of turbulence, but recently, gold has increasingly trading off U.S. rate hike expectations, and how the dollar performs against the euro," ING analyst Hamza Khan said.
"Today we have all of this concern around Grexit creating bullish sentiment for gold, but at the same time we have weakness in the euro creating bearish sentiment for gold, and they're effectively cancelling each other out."
Investment interest in gold has shown some signs of improvement recently. U.S. Commodity Futures Trading Commission data showed on Friday that hedge funds and money managers raised a bullish bet in COMEX gold futures and options in the week to June 23.
Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, posted their biggest rise since early February last week at 9.5 tonnes.
The fund recorded a small outflow on Friday, however, of 1.8 tonnes, and its holdings remain little changed since the start of the year.
"Broad investor interest has become relatively positive," Barclays Capital said in a note. "Physical demand has also improved at the margin, particularly as rainfall in India has risen above normal levels. But we would caution that we remain in the seasonally slow period for demand and believe the floor for prices looks vulnerable."
Among other precious metals, silver was up 0.1 percent at $15.79 an ounce, platinum was up 0.1 percent at $1,076.50 an ounce, and palladium was down 1.2 percent at $666.50 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Crispian Balmer and David Evans)
