Gold gained more than 1 percent on Monday, after posting its biggest one-day drop in nearly 30 years the previous session.

Prospects for an easing in the month-long financial crisis could dim investors' interest in gold as a safe haven, but should also stem the kind of frenzied liquidiation that knocked nearly $65 an ounce off the metal on Friday, the biggest one-day fall in dollar terms since 1980.

'Because we're seeing a bit of a bounce on currency markets, that's giving gold a lift,' Australia & New Zealand Bank research head Mark Pervan said.

'But a rebound in the US dollar that would accompany a recovery in stocks would be bad for gold and we could see prices hit again,' he said.

Spot gold rose $14.50 or 1.71 percent to bid at $861.90 against a notional close of $847.40 on Friday, when prices were whipsawed in a nearly unprecedented over $100 range.

Gold hit a one-week low of $823.50 on Friday as investors sought cash to cover margin calls from steep losses in stocks, having earlier rallied to a two-month high at $931 an ounce.

'Subject to the panic attacks and unstable psychology of world financial markets, gold will continue its roller-coaster ride, exhibiting short-term price volatility,' said Jeffrey Nichols, managing director of American Precious Metals Advisors.

'The withdrawal of central banks from gold-lending market is contributing to gold's high volatility. With many banks and financial institutions at great risk, central bankers are willing to sacrify the small return they earn on lending gold in favour of safekeeping their reserves at home.'    

Nations from Europe to Australia rushed out more plans on Sunday to shore up their banks with pledges to back lending, buy stakes in financial institutions and take other emergency steps, with markets initially responding positively.

The euro rose 1.2 percent to $1.3573, up from 1.3394 in New York late Friday. The dollar was at 100.65 yen, up from 100.51 yen in late Friday trading in New York. -Reuters