PRECIOUS-Gold holds gains above $1,230/oz as investors seek shelter

* Gold steadies after 1.5 pct gain on Tuesday

* ETF inflows support gold rally

* European and Asia shares fall for second day (Updates throughout, changes dateline from SINGAPORE)

LONDON, Feb 24 (Reuters) - Gold prices held ground above $1,230 an ounce on Wednesday, acting as foil against risk alongside top-rated government bonds as oil’s fall rippled into global equity markets.

Spot gold rose to $1,232.41 an ounce by 1013 GMT, after gaining 1.5 percent in the previous session, when prices benefited from strong inflows into bullion funds.

“It’s the financial market turmoil and negative interest rates ... lifting safe-haven flows into gold,” Societe Generale analyst Robin Bhar said.

Technically, gold looks set to test recent highs at $1,240 and then a one-year top of $1,260, MKS Group said in a note.

Shares fell in Europe and Asia as a nascent recovery in crude prices lost momentum after Saudi Arabia’s oil minister effectively ruled out production cuts by major producers any time soon.

The yen, also considered a safe haven, gained against key peers such as the dollar and euro.

Gold has gained some 16 percent so far this year as investors have channelled money into the asset on concerns over the global economy and financial instability, and the repricing of expectations for U.S. interest rate rises.

Assets in SPDR Gold Trust, the top gold-backed ETF, are at their highest since March 2015. The fund’s inflows since the beginning of the year have already surpassed outflows for the whole of 2015.

Inflows have offset a lack of interest from key Asian buyers, who have taken advantage of the gold rally to sell bullion and take profits.

Discounts in India are at a record of about $50 an ounce to the global benchmark, while in China they are at about $1.

The metal has also been helped by speculation that the Federal Reserve may not raise U.S. interest rates this year, after the first rate hike in nearly a decade in December.

Prices for U.S. fed funds futures suggest investors see little chance of any increases this year.

“The sustainability of gold’s rally comes down to the Fed and the market pricing in only one or no rate increases this year,” Societe Generale’s Bhar said.

The Fed may need to keep U.S. interest rates unchanged for an extended period to give inflation time to rise back to the central bank’s 2 percent target, Dallas Fed chief Robert Kaplan said on Tuesday.

However, Kansas City Fed President Esther George said the U.S. central bank should consider raising interest rates at its next policy meeting in March.

Among other precious metals, silver eased 0.5 percent to $15.20. Platinum dipped 0.8 percent to $931.70, edging toward a two-week low of $913.50 reached earlier this week. Palladium fell 0.7 percent to $495.30. (Additional reporting by A.Ananthalakshmi in Singapore; Editing by David Holmes)