Equities headed for a second day of losses and the euro languished near a two-month low as investors took fright at the prospect of mass euro zone sovereign ratings downgrades after the outcome of a "last chance" European Union summit failed to convince markets.

"It's all about anxiety and worry," said Nick Trevethan, Senior Commodities Strategist at ANZ in Singapore. "Gold is just getting lumped in with other markets as risky assets, not necessarily for the right reason."

Wild swings in gold prices since August have tarnished its reputation as a safe haven, and bullion has moved in tandem with riskier assets in the past few months.

Spot gold lost 0.7 percent to $1,654.65 an ounce by 0258 GMT, after posting its biggest one-day drop in nearly three months in the previous session.

US gold declined 0.6 percent to $1,658.70.

The $1,650 level should provide strong support for gold, analysts said.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported that its holdings dropped 0.605 tonnes to 1,294.796 tonnes by Dec. 12, the lowest in three weeks.

Physical buying picked up in Asia after the sharp decline in prices, but many were hesitant to buy in bulk ahead of the year-end, especially as market sentiment remains fragile on concerns about Europe's troubles, dealers said.

"Demand started to come in last night, but the amount has not been massive," said a Singapore-based dealer, adding that jewellers and bullion dealers from Indonesia and Thailand have been active buyers.

Investors will closely watch for any move by Standard & Poor's, which last week warned of a possible downgrade of 15 euro zone nations. In addition, the Italian and Spanish bond sales later this week will be a barometer of market sentiment.

Spot platinum edged up 0.3 percent to $1,483.25 an ounce, off a seven-week low of $1,476.23 hit in the previous session.

The gold-platinum spread stood at just above $171 an ounce, its narrowest level in two weeks, after the sharp price decline in bullion.