LONDON, June 21 (Reuters) - Gold rose for a third day on Tuesday, helped by investor concern over the risk to other euro zone economies from a Greek debt default, while a softer dollar also lent support.
Spot gold was bid at $1,544. 09 a troy ounce at 1 404 GMT compared with $1,539.95 late in New York on Monday when it touched $1,545.90, its highest since June 9. It is less than 2 percent below a record $1,575.79 hit on May 2.
The cabinet of Greek Prime Minister George Papandreou faces a confidence vote late on Tuesday, the first of three tests the government must survive to avert the euro zone's first sovereign debt default.
"Gold has been split between taking its cue from the changes in sovereign risk, but today the sovereign risk has declined and the euro ... has rallied and gold is choosing to track the euro more than it is the reduction in sovereign risk," said HBSC analyst Jim Steel.
Gold in euros , which is less than 1.5 percent below a record 1,088.11 euros an ounce, was trading down 0.2 percent on the day, reflecting the pick-up in the single European currency against the dollar.
The correlation between the euro-denominated gold price and the trade-weighted euro is close to its most negative in three months this week, at -72 percent, showing how much more likely gold is to trade inversely to the currency right now.
"Gold is inextricably linked to the events in Greece, both gold and silver are hostage to contagion fears," said RBS analyst Nick Moore. "The elevation of gold can be firmly nailed on safe-haven buying."
The vote in Greece follows a euro zone ultimatum that the debt-choked Mediterranean state must approve a new five-year package of painful economic reforms in two weeks or miss out on a 12-billion-euro aid tranche that it needs to avoid bankruptcy.
IMF and European inspectors are also in Athens to discuss changes requested by Greece to the reform package.
RIPPLE EFFECTS
Greece's problems have in recent weeks damaged euro sentiment and boosted the U.S. currency.
However on Tuesday, optimism in currency markets of a positive outcome to Greece's problems helped the euro and weighed on the dollar, which when it falls makes gold cheaper for holders of other currencies.
Investors are afraid of what could happen if the situation in Greece were allowed to continue. They are worried about the ripple effects to countries such as Italy, Ireland and Spain.
"Uncertainty still haunts market participants with small scale safe haven buying pushing bullion prices back up," said Andrey Kryuchenkov, analyst at VTB Capital.
"Eurozone's debt woes are fuelled by Greece's failure to adopt fresh austerity measures while it makes the situation worse for other peripheral states with the cost of sovereign funding on the rise."
Yields on Greek and other lower-rated euro zone bonds such as those issued by Italy rose after ministers delayed granting emergency loans to Greece.
Silver touched $36.37 an ounce, its highest since June 10, and was last up 0.7 percent on the day at $36.29. Platinum was up 0.8 percent at $1,741.49 an ounce, while palladium was up 2 percent at $758.72. (Created by Amanda Cooper)
