Gold hammered by stock surge, tumbles off 4-month peaks

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Gold prices slid more than 2 percent on Monday as concerns over the euro zone periphery faded, triggering a rebound in stock markets and prompting bullion investors to cash in gains after last week's rise to 3-1/2 month highs.

Equity markets in Europe rose as investors put aside concern over euro zone banks, while U.S. stocks rallied at midday on Monday after the latest flurry of merger activity, and strong earnings from Citigroup.

Spot gold was down more than 2 percent at $1,306 an ounce, on track for its biggest one-day loss since Dec. 2. U.S. gold futures for August delivery ended down $30.70 an ounce at $1,306.70.

The metal rallied to its highest since mid-March at $1,345 an ounce last week as concerns about Portugal's largest listed bank sparked heavy selling of stocks and shares.

"The unwinding of the fear trade from Thursday looks like the main factor (in today's drop)," Societe Generale analyst Robin Bhar said.

Chart: Precious Metals

"Gold was catapaulted higher on the European debt woes... But it looks as though there's no risk of contagion, and people decided to take profit. You then saw stops being hit, others clambered on board to get out. It all got quite messy."

Portuguese bond yields fell on Monday, retreating further from a six-week high on July 10, after the country's biggest bank took steps aimed at reassuring investors of its stability, calming peripheral debt markets after their first episode of contagion this year.

European stocks rallied from last week's near two-month lows after their biggest weekly loss in four months, boosted by merger and acquisition activity.

--By Reuters. For more information on precious metals, please click here.