Gold rose 1 percent on Monday as a weaker U.S. dollar triggered bargain hunting after the yellow metal's two-day slide caused by concerns the Federal Reserve could soon start tapering its monetary stimulus.

Investors are also digesting news that hedge fund manager John Paulson's gold fund has lost 65 percent so far this year after the portfolio declined 23 percent last month. Bullion has fallen 10 percent since Fed Chairman Ben Bernanke last month said the economy was recovering strongly enough for the U.S. central bank's $85 billion monthly bond-buying stimulus to be reduced as soon as later this year.

Data on Friday showed that U.S. employers added 195,000 new jobs to their nonfarm payrolls last month, indicating that the improvement in the jobs market remains on track.

"The move down (in gold) on Friday was pretty strong, so obviously you would expect some kind of rebound and if you look at currencies, the dollar is coming off earlier highs, so there is a bit of stabilization in gold after losses," said Credit Suisse analyst Karim Cherif.

Spot gold rose 1 percent to $1,235.49 an ounce by 4:11 p.m. EDT (2011 GMT).

U.S. Comex gold futures for August settled up $22.20 at $1,234.90.

Gold posted its biggest quarterly loss on record in the second quarter, down 23 percent for April-June, and touched $1,180.70 for the first time in nearly three years on June 28.

On Monday, the U.S. dollar, which had initially rallied 1.5 percent to a three-year high against a basket of currencies, reversed gains as investors booked profits on its rise. Investors were now focused on the Federal Open Market Committee (FOMC) minutes, records from the Fed's June meeting, due for release on Wednesday.

FURTHER DECLINES SEEN POSSIBLE

Analysts said continued liquidation from gold-backed exchange-traded funds signal that interest in the precious metal was waning. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.3 percent to 30.92 million ounces on Friday, hitting fresh lows since February 2009.

Among other precious metals, silver rose 0.8 percent to $19.02 an ounce.

Platinum gained 2.6 percent to $1,357.49 an ounce and palladium was up 2.4 percent to 694.41 an ounce, as platinum group metals were helped by news of renewed strike disruptions in major producer South Africa.