* Monday's unprecedented price rout tempts buyers back to
gold

 * Physical demand, " exceptionally strong" , says UBS

 * Silver bounces back 7 pct after sharp drop

 By Amanda Cooper	

 LONDON, Sept 27 (Reuters) - Gold rose by nearly 2 percent on
Tuesday as a drop in the dollar index helped the precious
metal's recovery from its worst three-day decline in nearly
three decades the day before, when the drop in price lured
physical buyers back to the market.	

 Prices dropped more than $120 an ounce in Asian trading
hours on Monday, an unprecedented intraday fall in value terms,
as a rush for the liquidity of the dollar, losses in other
markets and a margin hike on CME gold futures prompted selling.	

 The recovery in price continued into Tuesday, climbing
comfortably back above the 100-day moving average just below
$1,640, following a surge in buying interest in many key
consuming nations in Asia, which pushed local premiums to their
highest since the start of the year.	

 Spot gold was up 1.9 percent at $1,656.90 an ounce at
1419 GMT, having struck a session peak at $1,676.69. U.S. gold
futures GCv1 for December delivery were up $65.30 an ounce, or
4.1 percent, at $1,660.40.	

 " We'll see if we are completely out of the woods. We did
drop very sharply, but this is a nice bounce and what is
encouraging about it is that its predicated, at least in part,
in a recovery in emerging market demand. They have proved to be
nimble on this price decline,"  said HSBC analyst James
Steel.  	

 Premiums for physical delivery of gold in Hong Kong and
Singapore, two major bullion trading hubs, rose to their highest
since February and local dealers reported robust demand from
both retail and industrial consumers. 	

 " Given that we haven't had any correction for months, this
has brought better value to the market for people who want to
get back into gold,"  said Credit Agricole analyst Robin Bhar.	

 " I think gold's bottomed out here,"  he said. " Longer term,
have all the factors that were bullish for gold really been
addressed? Currency debasement, economic imbalances, sovereign
debt -- the factors that were there last week are still here
today." 	

 On the currency markets, the dollar fell by more than 1
percent against a basket of major currencies after, set for its
biggest one-day fall since December last year. A weaker dollar
tends to support gold, as it makes dollar-priced commodities
cheaper for other currency holders. 	

 Concerns over euro zone debt and the outlook for the U.S.
economy were key factors pushing gold prices to record highs
above $1,920 an ounce earlier this month, as investors sought
assets seen as a haven from risk. The worsening crisis has
diverted them towards the dollar, however, at gold's expense.	

 PHYSICAL BUYING EXCEPTIONAL	

 Gold-backed exchange-traded funds showed few signs of a rout
on Monday. Holdings of the largest, New York's SPDR Gold Trust,
declined some 5-1/2 tonnes but are still up 1.2 percent so far
this month.	

 Most major funds are still in positive territory for
September in percentage terms, with the iShares Gold Trust 
and ETFS' Swiss Gold fund up 0.5 percent.	

 Meanwhile, heavy buying of physical gold stocks -- often a
price-sensitive area of demand -- suggested that Monday's price
fall had whetted investors' appetite for the metal.	

 Swiss bank UBS said it had seen very strong physical buying
in Asia, particularly number one bullion consumer India, on
Monday. " To be clear, physical demand right now is not just
decent, it is exceptionally strong,"  the bank said.	

 Other precious metals also bounced back after Monday's hefty
losses. Silver, which slid as much as 16 percent to a 10-month
low of $26.04 an ounce on Monday, rose more than 9 percent to a
high of $33.48 an ounce.	

 Analysts say buyers are likely to remain wary of silver,
however, given the intense volatility of prices. Silver 
was later up 6.3 percent at $32.59 an ounce.	

 Platinum was up 0.8 percent at $1,566.99 an ounce,
having fallen to a 21-month low the day before, while palladium
 rallied 4.0 percent at $650.98 an ounce.	

 Gold's premium over platinum stood at around $90
on Wednesday, with a ratio of 1.06, its highest in 20 years.	
	
 (Additional reporting by Jan Harvey  editing by James Jukwey)