LONDON (Reuters) - Gold recovered strongly on Tuesday as buyers from China saw value in lower prices and as panic over western world debt subsided in the wider financial markets, lessening the need to sell gold to raise dollar funding. But the respite was seen as temporary, with investors rattled by the continuing stress on euro zone debt markets, and also by the apparent inability of U.S. officials to come to grips with debt in their own economy. A bipartisan U.S. deficit-reduction committee abandoned on Monday a three-month effort to find $1.2 trillion in budget cuts, although rating agencies were holding off taking immediate action on the U.S. rating. On the other side of the Atlantic, Spains Treasury paid the highest yields in 14 years to issue short-term bills while German bunds recovered, indicating concerns that the euro zone may struggle to find a solution to the debt crisis in time. Spot gold gained more than 1 percent to trade at $1,697.69 an ounce by 1125 GMT, off the four-week low of $1,665.88 hit on Monday. The gold has lost nearly 5pc over this week and last. US gold also rose more than 1pc to $1,697.70. There was a lot more activity in the Asian market this morning and (theres) the less aggressive selling across all asset classes, including gold, said Credit Suisse analyst Tom Kendall. Running up to today golds been suffering because its a source of cash, of U.S. dollars. When balance sheets are under stress if you need to raise dollars and youre holding gold its an easy instrument to use. The dollar slipped versus a currency basket on Tuesday as global equities paused their sell-off, but the U.S. currency remained near a six week high as European banks scrambled to secure cash dollars amid funding strains. A strong dollar usually makes dollar-priced gold costly for European investors, weighing on gold. In addition, the need to sell gold to raise dollars to cover losses in other markets has in recent days over-ridden golds traditional appeal as a safe haven asset that holds its value in times of economic or political turmoil. Going forward however, safe haven plays could put a floor under gold prices, especially if the metal suffers sharp falls and starts to look appealing to investors in Asia and in top gold buyer India. Fundamentally, gold is not looking that bad, especially were risk aversion to escalate, with investors returning to the ultimate safe haven asset. We still believe in limited losses for gold after the ongoing price correction, said VTB Capital analyst Andrey Kryuchenkov. Buying from China emerged in the Shanghai market overnight, though gold demand in India was subdued as a weakening rupee kept buyers at bay, further deterred by a rebound in local prices due to gains in overseas markets. In other precious metals traded, spot silver rose 0.35 percent to $31.75 an ounce, recovering from a one-month low of $30.63 hit in the previous session. Chinas trade data revealed that the countrys silver imports slumped 26 percent in October from a year earlier. The inflow of silver powder, used in the photovoltaic industry, dropped 20 percent. The (photovoltaic) sector had provided some support to silver prices, but in light of the concern about industrial demand, this is an element that has now softened, thus increasing the importance of investment demand to make up for the fundamental surplus, said Barclays in a research note. However, investment demand in silver has also slowed recently, leaving prices more vulnerable to the downside. Spot platinum rose 0.73 percent to $1,557.24 an ounce, while spot palladium rose 1.15 percent to $591.47 an ounce.