(Reuters) - Gold rallied on Tuesday as the jewelry sector came looking for bargains, the dollar slipped and investors fretted about the Greek debt crisis. Spot gold was bid at $1,518.64 a troy ounce at 0929 GMT (5:29 a.m. ET) from $1,514.73 an ounce late in New York on Monday when it suffered its biggest one-day loss in a month, touching a three-week low of $1,511.11 an ounce. Traders said Monday's sharp fall had encouraged interest from jewelry makers and that investor buying was boosted by the higher euro making commodities priced in the U.S. currency cheaper for holders of other currencies. Talks of a second bailout for Greece coming closer to a conclusion as the European Commission pushes for a voluntary debt swap also helped shore up sentiment. "A weaker dollar has helped the rebound today, albeit amid low volumes. We see uncertainty surrounding the next aid tranche to Greece as gold supportive," said Andrey Kryuchenkov, analyst at VTB Capital. "Uncertainty will underpin the market toward the end of the month when Athens is scheduled to get its next loan under conditions that are currently being worked out." Greece became the lowest-rated country in the world in the rankings of credit rating agency Standard & Poor's, putting it below Ecuador, Jamaica, Pakistan and Grenada. S&P cut Greece three notches and warned it would view a likely debt restructuring as a default. EUPHORIC EXPECTATION S&P's downgrade hit the euro on Monday and triggered a flight to perceived safety -- the dollar and U.S. Treasury bonds, but not gold. "When the Greek sovereign debt issue first gained the market's attention in 2010, gold was among the principal beneficiaries in the form of heavy safe-haven buying," HSBC said in a note. Investor selling can be seen in holdings of physical exchange traded funds. Holdings of the largest gold-backed ETF, New York's SPDR Gold Trust fell 0.08 percent on Monday from Friday. The largest silver-backed ETF, New York's iShares Silver Trust saw its holdings fall 2.1 percent. Spot silver also tumbled to a three-week low of $34.55 an ounce on Monday. The industrial precious metal was last at $34.99 an ounce from $34.69 late in New York on Monday. Silver touched a record high of $49.51 on April 28. "The market had been heavily overbought on the euphoric expectation that silver would continue to outperform gold and it needed to have some froth blown off it," Societe Generale said in a research note. "Indian demand has long been a key to this market. India accounted for almost 900 tonnes of silver investment in 2010 ... Demand so far this year has been under some threat. Spot platinum was at $1,800.24 from $1,791.25 on Monday and palladium was at $802.00 from $789.78. (Reporting by Pratima Desai; editing by Alison Birrane)

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