* Equities rally in Europe, Asia after corporate earnings
* Euro declines after Portuguese debt auction
* Coming up: Fed chair Bernanke's testimony before Congress
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, July 21 (Reuters) - Gold firmed in Europe on Wednesday after a weak Portuguese debt auction raised concerns over the fragility of the euro zone banking sector, knocking the euro, but gains were limited by softer investment demand.
A 6.1-tonne fall in holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust <GLD>, on Tuesday, their biggest one-day decline since December, indicates waning investor confidence in the metal, analysts said.
Spot gold <XAU=> was bid at $1,195.70 an ounce at 1117 GMT, against $1,191.40 late in New York on Tuesday. U.S. gold futures for August delivery <GCQ0> rose $3.70 an ounce to $1,195.40.
"I think gold can back above $1,200 an ounce," said Citigroup analyst David Thurtell.
"There was a lot of buying in April, May and June on the back of these sovereign debt worries. Once some of those fears subsided, gold came down again, but there are still enough people out there who are worried to buy gold below $1,200."
A seasonal recovery in gold demand in the fourth quarter is still likely to take prices back to $1,250 an ounce towards the end of the year, however, he added.
The euro slipped against the dollar on Wednesday after the Portuguese debt auction. Portugal sold 1.25 billion euros in 12-month Treasury bills, but the average yield more than doubled from the previous sale, indicating caution. [] []
Equities meanwhile performed strongly, with world stocks rising after strong earnings and forecasts from tech heavyweight Apple raised expectations for solid second-quarter results from other major companies. []
European shares surged in early trade, while U.S. stock index futures indicated a higher open on Wall Street. [] []
Among other commodities, oil rose above $78 a barrel and base metals like copper strengthened after strong U.S. corporate earnings raised optimism over the strength of the recovery in the world's largest economy. [] []
Looking ahead, the financial markets are awaiting Federal Reserve Chairman Ben Bernanke's testimony on economic and monetary policy before Congress later today.
Analysts will be watching for any suggestion that the Fed may extend its programme of quantitative easing.
STEADY SLIP
Gold has slipped since reaching a record $1,264.90 an ounce at the end of June, boosted by investment in the metal as a haven from volatility in other markets amid concerns over the economic outlook and euro zone sovereign debt levels.
U.S. economist Nouriel Roubini said in a note on Wednesday that gold's near ten-year rally may be running out of steam.
"The concerns propelling the price of gold specifically are very real and should not be ignored," he said. "But is now the time for investors to jump the gold bandwagon? We wouldn't encourage it."
"In short, our core economic forecast scenario does not entail any of the extreme events that could result in a major gold price spike, and given the fact that the metal has already surged in price, we see several potential downside risks."
Prospects for the asset price bubble bursting, interest rates starting to rise, or investors losing confidence in gold's value could all knock the metal lower, he said.
Among other precious metals, silver <XAG=> was at $17.83 an ounce versus $17.65, platinum <XPT=> at $1,519.25 against $1,512.95 and palladium <XPD=> at $447.98 versus $449.53.
Refiner Johnson Matthey reported a 47 percent rise in first-quarter profit as it recovered from a slump in demand, and forecast an improved full-year performance.
The platinum refiner and world's largest supplier of catalytic converters said on Wednesday April-June sales excluding precious metals rose 32 percent year on year. Falling demand for automotive products hit the group last year as the recession took its toll on sales.
(Reporting by Jan Harvey; Editing by Alison Birrane)
