Gold prices fell more than 1 per cent in Europe on Monday as concerns over Spain's financial health pushed the euro to two-year lows against the dollar, pressured stock markets and drove Spanish borrowing costs to euro-era highs. Investors grew more concerned on Monday that Spain may need a full bailout after a second region, Murcia, indicated it would need government help, likely following Valencia in tapping a government programme to shore up its finances. Pressure on the euro and the wider markets helped push spot gold prices down 0.8 per cent to $1,572.10 an ounce at 0905 GMT. Earlier they touched a low of $1,568.04. "The great danger for the gold price is the stronger dollar, because of its long-term negative correlation to gold. That's definitely still dampening the interest of investors from the United States," Commerzbank analyst Eugen Weinberg said. "But in euro terms, gold is trading near six-month highs, so it's not as bad as it first looks. It's more about dollar strength than gold weakness," he said. "It's difficult to see the pressure coming off (the euro). But as long as prices stay above $1,530, they are still in a stabilisation phase." European shares were down 1.4 per cent, led by euro zone banking stocks, after Spain's financial outlook took a turn for the worse over the weekend. Spanish 10-year government bond yields hit their highest since the euro was launched. "The fear now is that Valencia's aid request is more than likely to open the floodgates for similar requests from the other 17 heavily indebted Spanish regions," CMC Markets said in a note. "Already speculation is increasing that Catalonia, or any one of a number of regions will be next. When that happens it will be pretty much nailed on that the Spanish government will then eventually need a bailout itself, stretching the funds of the EFSF to its limits." Expectations for more euro weakness, and consequent dollar strength, later this year will likely keep gold under pressure.

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