NEW YORK (Reuters) - Gold rose on Tuesday, snapping a two-day losing streak, boosted by simmering inflation pressures in China and sharp gains in industrial commodities amid better-than-expected U.S. retail sales.
Underlying economic uncertainties also supported silver's over 2 percent gains, after Federal Reserve Chairman Ben Bernanke warned that a failure to lift the U.S. debt ceiling risks a potentially disastrous loss of confidence in America's creditworthiness.
Data in China, the world's second-largest economy, showed the pace of inflation was running at its fastest pace in almost three years, while a less-than-expected drop in U.S. retail sales lifted the S&P 500 index by 1.5 percent.
"The worst fears of the economic data has been discounted. There is more risk appetite out there, and some of that money is flowing into the precious metals," said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.
Spot gold was up 0.6 percent at $1,524.40 an ounce by 2:55 p.m. EDT (1855 GMT), after it suffered its biggest one-day loss in a month.
U.S. August contract settled up $8.80 at $1,524.40 an ounce, after trading between $1,512.80 and $1,526.70. Volume was half of its 30-day average, consistent with lower recent volume.
Gold is up 3 percent in the past four weeks on a flurry of disappointing U.S. economic data including a weak jobs report.
Spot silver recovered from Monday's 4-percent slide, and was up 2.4 percent at $35.52 an ounce.
On charts, silver's outlook turned bullish after it rose above key support near $34 an ounce, after the metal recently failed to regain its 55-day moving average twice in the $39 area, CitiFX analysts said.
Bullion gained as inflation in China and India accelerated in May, prompting Beijing to lift bank reserve requirements and keeping pressure on India to raise interest rates later this week even as Asia's two big growth engines show signs of slowing.
DEBT TALK, EUROPEAN DEBT IN FOCUS
Gold extended gains following Bernanke's comment, after it fell 1 percent in each of the last two sessions.
Bernanke said in the absence of a quick resolution to the battle over the debt limit, the United States could lose its prized AAA credit rating, while the U.S. dollar's special status as a reserve currency might be damaged.
Sputtering U.S. job growth and talk of new tax cuts are throwing more hurdles in the way of a deal to reduce the deficit as Democratic and Republican negotiators step up their budget negotiations this week.
The decline in investor appetite for gold over the prior two trading days was reflected in the 241,000-ounce decline over the last week in holdings of the metal in exchange-traded funds.
Holdings of the largest gold-backed ETF, New York's SPDR Gold Trust fell 0.08 percent on Monday from Friday, while the largest silver-backed ETF, New York's iShares Silver Trust saw its holdings fall 2.1 percent.
The yellow metal was also supported by lingering European debt worries as talk of a second bailout for Greece coming closer to a conclusion, as the European Commission pushes for a voluntary debt swap also helped shore up sentiment.
Among platinum group metals, platinum gained 0.1 percent to $1,792.20 an ounce, and palladium rose 0.4 percent to $793.13 an ounce.
Prices at 2:55 p.m. EDT (1855 GMT)