Gold prices tumbled more than 2 percent on Monday in the biggest one-day drop since early December, as fading fears over Portugal's banking sector and a gain in U.S. equities prompted investors to take profits after bullion's rally to 3-1/2 month highs last week.

Spot gold was down 2.4 percent at $1,305.50 an ounce by 2:06 p.m. in New York (1806 GMT), on track for its biggest one-day loss since Dec. 2. Earlier, gold fell to $1,302.90, the lowest level since June 19.

Bullion prices were hit by waves of heavy selling when prices fell below key support at $1,330 and $1,310 an ounce in U.S. gold futures, triggering massive stop-loss orders, traders said.

In the U.S., Comex gold futures for August delivery settled down $30.70 an ounce, or 2.3 percent, at $1,306.70.

Gold rallied to near $1,350 an ounce last Thursday after questions about the health of Portugal's top-listed bank sparked worry that a new euro zone banking crisis might be in the offing.

"Some of the fears about those headlines have diminished, and that has given investors who had been riding on gold's momentum an excuse to take profits," said Jeffrey Sica, chief investment officer at Sica Wealth, which manages about $1 billion in client assets.

The pace of trading was frantic, with volume about 60 percent above its 30-day average, preliminary Reuters data showed. Portuguese bond yields fell on Monday 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.

"Anytime when there is unease in financial markets, people come back to gold. In the near term, however, investors are more willing to take profits after safe-haven rallies," said Thomas Capalbo, precious metals trader at brokerage Newedge.

Also weighing on gold was Monday's stock-market rally sparked by the latest flurry of merger activity and earnings from Citigroup.

Among other precious metals, silver was down 2.5 percent at $20.85 an ounce.

Spot platinum fell 1.5 percent to $1,484.75 an ounce, while spot palladium edged down 0.3 percent to $867.25 an ounce. Platinum investors digested news that Anglo American Platinum, the world's biggest platinum producer, said on Monday its first-half earnings would fall by as much as 96 percent after a five-month strike crippled its operations.