Gold steadied on Tuesday as a dip in the US dollar led investors to buy back the precious metal, which fell more than 1% the previous day on a stock market rally.

The Obama administration on Monday offered a raft of incentives for private investors to rid banks of up to $US1 trillion in toxic assets, raising hopes for greater stability in the financial system, but hitting gold's safe-haven status.

Japan's Nikkei average briefly climbed nearly 3% to a more than two-month high on Tuesday, after a 7% increase in US stocks on Monday, buoyed by bank shares.

Analysts said that fears of inflation fanned by Federal Reserve plans to buy long-dated US Treasuries, announced last week, still linger even if they have temporarily eased a little.

"Traders are probably focusing more on how the US Treasury is going to clear up the toxic debts in the financial system,'' said Adrian Koh, an analyst at Philip Futures.

"However, on a longer-term view, inflation concerns will remain a main driver for gold and commodities,'' Koh said.

Gold was at $US941.00 per ounce in Asian trade, up 0.4% from New York's notional close of $US937.15 on Monday, when it fell more than 1% as investors moved away from safe-haven investments.

The temporary dip in interest in gold was also evident in the holdings of gold-backed exchange traded funds. The world's largest gold-backed ETF, the SPDR Gold Trust, said its holdings nudged down about a third of a tonne to 1114.29 tonnes on March 23 from their record-high 1114.60 tonnes.

It was the third time the SPDR's holdings have pulled back this year, but each time it has slipped a mere 0.3 tonnes or so, and the overall amount is still up more than 330 tonnes so far in 2009.

Investors are likely to keep watching US government steps aimed at pulling the economy out of a painful recession.

"I think we'll see (gold) range bound for a little while until we see whether the economy is really improving,'' Ronald Leung, director of Lee Cheong Gold dealers in Hong Kong, said.

The US dollar and the yen fell on Tuesday as regional stocks extended gains on optimism about the US program.

Gold is often viewed as an alternative to holding the dollar, and often rises when the US dollar falls.

A weaker dollar also boosts gold for investors holding other currencies