Gold prices rose in Europe on Wednesday, as a retreat in the dollar, rising oil prices and caution ahead of a sale of Portuguese bonds later in the day all boosted interest in the precious metal.

Spot gold was bid at $1,383.10 an ounce at 3:04 a.m. ESTT, against $1,380.45 late in New York on Tuesday. U.S. gold futures for February delivery fell $1.20 an ounce to $1,383.10.

Prices are clawing back some lost ground after posting their biggest weekly loss since mid-2010 last week, as a focus on more positive U.S. data raised the prospect that U.S. authorities may roll back quantitative easing measures sooner rather than later.

Last week's slide in gold to around $1,353 was more of a sell-off... on the fear that the U.S. would report a huge job growth figure, which did not happen, said Pradeep Unni, senior analyst at Richcomm Global Services.

With the euro still deep (in the) debt crisis and physicals using every dip to buy the metal on anticipation of an extended rise, there is little downside possibility for gold, at least in this quarter, he added. Weakness in the dollar and rising oil will add to the... reasons to hoard gold.

The euro edged up on Wednesday on speculation that euro zone finance ministers may raise the lending capacity of the region's rescue fund, though gains were limited as investors braced for a Portuguese bond auction later in the session.

Portuguese government bond yields hovered around 7 percent on Wednesday as it prepared to tap investors for funds in auctions seen as a key test of the country's ability to stave off an international bailout.

Today's bond auction could be seismic for markets were it to fail, said Credit Agricole in a note. We suspect it will not and yesterday's narrowing of spreads, reportedly on the back of ECB buying, points to a determination to underpin sentiment.

Nonetheless, markets remain shaken, and policymakers so far have not really been stirred to step up the aggressiveness of their actions beyond the kind of 'sticky plaster' remedy delivered yesterday, it added. The euro will remain vulnerable as a result.

OIL CLIMBS

Among other commodities, oil prices rose, with Brent crude climbing to $98 on Wednesday, their highest since October 2008, as production shutdowns in Norway and Alaska raised expectations of an accelerated tightening of supplies.

U.S. crude also rose to within a few dollars of its recent more than two-year high. Rising oil prices can fuel demand for commodities as an asset class, lifting gold.

Gold buying in India, the world's biggest consumer of the metal, eased on Wednesday as prices rose, but buying remains strong overall across Asia, particularly in China. Premiums for gold bars hit their highest in two years on Tuesday.

The impressive Chinese demand has been fueled by lower prices, the upcoming New Year, and also physical delivery against the February Shanghai Futures Exchange contract, said UBS analyst Edel Tully in a note.

We expect the heavy Chinese demand to persist for another 10 days or so, and turn very light in the five or six days before the February 3 Chinese New Year, as seen in previous years.

Demand for gold to back exchange-traded funds eased off further, meanwhile, with holdings of the largest, New York's SPDR Gold Trust, slipping just over 1 tonne on Tuesday. Its holdings have declined more than 9 tonnes since the start of the year.

Holdings of the largest silver ETF, the iShares Silver Trust, also declined, to 10,725.73 tonnes on Tuesday from 10,786.51 tonnes.

Silver was bid at $29.67 an ounce against $29.50. Platinum was at $1,787.99 an ounce against $1,765.99, while palladium was at $802.47 against $782.

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