* Portugal cut renews safety play, gold at 1-1/2 wk high
* Early gold gains won on China, euro zone fears
* Asian buyers return after prices dip below $1,500/oz
* Next big technical target seen at $1,550/oz (Recasts, updates prices, market activity; adds comment, Portugal downgrade.)
By Carole Vaporean and Jan Harvey
NEW YORK/LONDON, July 5 (Reuters) - Gold prices shot up to a 1-1/2-week high on Tuesday , as risk-averse investors bought the precious metal on concerns about the Chinese economic outlook, the Greek debt crisis and a Moody's downgrade of Portugal's debt.
Spot gold
Gold futures rose further in after-hours trade, as investors digested a Moody's Investors Service downgrade of Portugal's credit rating by four levels to Ba2, two notches into junk territory.
Moody's said it saw a great risk that Portugal will need a second round of official financing before it can return to capital markets. [ID:N1E764185]
"When the deal was made with Greece last week, people who sold gold as a safety play started to question whether a similar deal would get cut with Portugal, Ireland and other countries with debt trouble. And, they put the safety trade back on a bit today," said Jeffrey Friedman, senior market strategist at Lind-Waldock in Chicago.
"The downgrade of Portugal reinforced the notion that we still need safety. Really, gold's up on a safety concept. Those are the people who came in the market today," Friedman added.
Weak euro zone data and concerns on China also weighed on risk sentiment, which gave a safe-haven boost ot the dollar too. [USD/]
A stronger dollar usually would weigh on gold, but the precious metal's value as a haven from risk trumped that concern.
Investors fretted about China due to media reports about a possible rate rise and a Moody's report saying the scale of problem loans at local governments there may be much bigger than previously thought. [ID:nL3E7I507Y]
Concerns about Greece have not faded despite the country's passage of austerity measures and approval of a 12 billion-euro loan by euro zone finance ministers. Moody's downgrade of Portugal added to risk aversion purchases.
"We have seen a bit of buying coming back in from some of the institutional names that have been absent for a while, and positioning in gold is a lot less from shorter-term players than it has been," said Credit Suisse analyst Tom Kendall.
U.S. Treasury futures, another safe-haven asset, also rebounded, paring some heavy losses seen last week. [US/]
"If you're talking about the gold market, they beat about $60 out of it last week. Why can't you have a reasonable rebound today, even with a stronger U.S. dollar. We shouldn't be surprised by this," said Dennis Gartman, publisher of The Gartman Letter.
Some analysts look for gold to next target $1,550 per ounce as technical and fundamental factors align to send gold higher.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
See Insider segment: http://link.reuters.com/cyg52s
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EURO ZONE GRAPHICS:
Euro zone debt struggle: http://r.reuters.com/hyb65p
ECB in graphics: http://r.reuters.com/neg32s
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
ASIAN GOLD BUYING PICKS UP
Asian gold demand firmed overnight after prices slid below $1,500 an ounce, with buying picking up in Thailand after Sunday's election and premiums rising in Singapore. Indian and Chinese buyers -- the world's top gold consumers -- were also seen in the market, though seasonal factors muted buying. [GOL/AS]
"Gold will need to search for new sources of inspiration to move higher, in our view, as the markets contemplate a world without quantitative easing," said Deutsche Bank in a note.
"However, we expect a weak U.S. dollar, negative real interest rates and ongoing central bank diversification into gold will sustain a constructive outlook for the sector."
Data released by the International Monetary Fund showed on Tuesday that Greece and Tajikistan marginally increased their gold reserves by 0.03 tonnes and 0.05 tonnes respectively in May, while Mexico sold 0.19 tonnes. [ID:nL6E7I5069]
Among other precious metals, silver
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold