NEW YORK (Reuters) - Gold fell 1 percent amid heavy trading volume on Tuesday, as the euro's slide on worries over Spain's debt prompted investors to sell the precious metal to cover losses in other markets. Bullion erased initial gains as the euro tumbled below $1.25 to hit its lowest in nearly two years against the dollar after credit agency Egan-Jones downgraded Spain's sovereign rating. U.S. equities and other commodities also dropped. <.N> Gold is set for a nearly 7 percent decline in May, which would be its worst monthly performance this year and a fourth successive month of losses, its longest stretch since January 2000. The metal's investment appeal has been more than offset by the strength in the U.S. dollar and Treasuries, also viewed as safe havens by investors. "That trade which is directly tied to the euro weakness, and has made gold so significantly volatile, is going to have a short-term negative impact on gold," said Jeffrey Sica, chief investment officer of SICA Wealth Management LLC. "People are trading out of gold based on the euro weakness, but they will buy back into gold based on fear," said Sica, who manages $1 billion in client assets. Spot gold was down 1.1 percent at $1,556.30 an ounce by 12:29 p.m. EDT (1629 GMT), off an earlier high of $1,582.40. U.S. gold futures for June delivery were down $13.20 at $1,555.70. Prices at 12:29 p.m. EDT (1629 GMT) (Additional reporting by Jan Harvey and Amanda Cooper in London; Editing by Marguerita Choy)

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