* Gold down 2.5 pct; investors sell to cover stock losses
* Technical selling pressures prices; $1,800 in focus
* Euro/gold hits record high in early session
* Coming up: U.S. import/export prices on Tuesday (Recasts, updates prices, market activity, adds link to graphic)
By Frank Tang and Amanda Cooper
NEW YORK/LONDON, Sept 12 (Reuters) - Gold dropped 2.5 percent on Monday, falling further from last week's record highs, as mounting fears about the European debt crisis prompted investors to sell bullion to cover losses in equity markets.
Spot gold
Fears of a potential Greek default that could spread through global markets slammed stock markets, triggering heavy liquidation in gold. U.S. equities reboundeded in late trade to close higher, lifted by a technology merger agreement and hopes China might purchase Italian government debt.
But Wall Street's bounce did not lift bullion from sharp early losses, traders said.
Some warned that technical signals pointed to more downside for gold.
"We have some technical selling now coming into the market. If we poke our head below the $1,800 level, we can see a fairly rapid downward acceleration that might carry us back down to $1,700," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
Spot gold
U.S. December gold futures
Silver
"We had a similar situation in 2008, when stock markets dropped and pulled gold lower, as some hedge funds had to compensate loses by liquidating gold positions," said Peter Fertig, a consultant at Quantitative Commodity Research.
"Depending on whether the situation in stock markets calms down, this could go on for another couple of days," he said.
Greece confirmed on Monday that it had cash for only a few more weeks. [ID:nL5E7KC0F1] Investor confidence also was rattled by concerns that Moody's Investors Service could downgrade the credit-worthiness of French banks, which are widely exposed to Greek bonds.
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European banks in graphics: http://r.reuters.com/qux33s
Inflation-adjusted gold price: http://r.reuters.com/pun62s
GVZ gold volatility spikes: http://r.reuters.com/syb73s
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GOLD VOLATILITY SPIKES
Gold options' implied volatility -- a measure of how much traders expect prices to move, either up or down, in the future -- has surged to its highest in over two years, more than double its level of early July.
In addition, more gold option traders are using puts to hedge against downside risks after the metal failed to extend gains above a record above $1,900 an ounce last week, and for the second time in past three weeks. [ID:S1E78B1KW]
Volatility in other markets also affects gold. The CBOE Volatility Index <.VIX>, also known as the Wall Street fear gauge, jumped almost 10 percent to over 40 on Monday.
Early in the session, gold priced in euros
The gold price has risen by a third so far this year and by 22 percent in the third quarter alone, its largest quarterly gain since 1986, driven by a push by investors seeking an alternative to sinking currencies and volatile stocks.
In platinum group metals, platinum
SETTLE CHNG CHNG VOL US Gold DEC 1813.30 -46.20 -2.5 1804.00 1865.20 211,548 US Silver SEP 40.164 -1.409 -3.4 39.700 41.350 196 US Plat OCT 1809.40 -28.50 -1.6 1800.00 1843.30 9,077 US Pall SEP 710.25 -26.85 -3.6 700.15 725.40 20 Gold 1814.39 -42.77 -2.3 1801.75 1861.10 Silver 40.100 -1.220 -3.0 39.700 41.420 Platinum 1807.00 -21.70 -1.2 1800.75 1834.40 Palladium 700.18 -22.45 -3.1 702.23 735.22 TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 225,289 271,127 177,127 18.49 0.37 US Silver 44,607 76,679 61,613 40.35 0.41 US Platinum 11,308 8,195 7,300 22 2.00 US Palladium 5,349 5,148 3,973 (Additional reporting by Jan Harvey in London; Editing by Bob Burgdorfer and David Gregorio)