SINGAPORE (Reuters) - Gold inched up towards $1,600 an ounce on Monday, tracking a steady euro after world leaders pledged to combat financial turmoil, although worries about Greece and the euro zone debt crisis continued to feed caution in the financial markets. A pledge by the world's leaders to keep Greece in the euro zone offered some relief to the euro, which rose to its highest level in nearly a week against the dollar, while the greenback slipped against a basket of currencies , lending support to dollar-priced commodities. But investors remained skittish as the summit for G8 leaders offered no specific prescription for debt-crippled Greece which is headed for fresh elections next month. "We suspect that any early gains will eventually be rolled back, as the markets refocus their attention on the more pressing problems at hand, and ones that cannot be easily papered over by well-intentioned communiqués," said Ed Meir, an analyst at INTL FCStone, in a research note. Spot gold gained 0.4 percent to 1-1/2-week high of$1,598.79 an ounce earlier in the day, before paring some losses to $1,596.66 an ounce by 0655 GMT. Gold gained 0.8 percent last week. Cash gold rebounded swiftly in the past two sessions from a 2012 low below $1,530 an ounce and tested $1,600, which has proved to be a key resistance level. U.S. gold also inched up 0.3 percent to $1,596.60. Prices have found support from comments by Greece's leftist leader Alexis Tsipras that he would seek talks with European leaders on new terms to keep Greece in the euro zone if he was elected. A dip in net long positions in U.S. gold in the week ended May 15 helped gold's rebound late last week, as newly bearish traders scrambled to cover their short positions once prices reversed course from sharp falls earlier in the week. Traders increased their short positions in gold by 46 percent to 34,057 contracts during that week, the highest since September 2008. Long positions were cut to 112,676 contracts, the lowest since January 2009, the U.S. Commodity Futures Trading Commission said. "Those people who went short have to buy back at some time somewhere," said Yuichi Ikemizu, head of commodity trading, Japan, Standard Bank. Sentiment in gold-backed exchange-traded funds warmed a bit. Holdings of key gold ETFs rebounded from a 3-1/2-month low hit last Thursday to 69.884 million ounces on May 18. The holdings struck an all-time high of 70.89 million ounces in March. But Asia's physical gold market was quiet with prices rebounding, as traders moved back to the sidelines after buying on dips last week, dealers said. (Editing by Himani Sarkar)

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