PRECIOUS-Gold, silver rally on Greece worry, bargain hunting

* Gold, silver recoup some of last week's heavy losses

* Caution still dogs markets; euro zone eyed after S&P cut

* RJ/CRB index up 2 percent, led by oil's sharp gains (Recasts, adds comments, updates prices, changes byline, dateline, previously LONDON)

By Frank Tang

NEW YORK, May 9 (Reuters) - Gold gained 1 percent on Monday and silver surged 5 percent, bouncing up on bargain hunting after last week's sharp sell-offs and boosted by a ratings downgrade of Greece and a broad commodities rally.

Gold and silver rose sharply for a second session, but some said gains were unlikely to last. Silver, hit by a succession of margin hikes that nearly doubled costs, had its biggest correction last week since prices collapsed in 1980.

"Last week's sell-off was indicative of something more important in play -- the commodity markets are beginning to price in a global industrial slowdown, and that combined with the likelihood that the U.S. dollar had put in at least an intermediate low," said James Dailey, portfolio manager of the TEAM Asset Strategy Fund, which has $54 million fund assets.

Spot gold rose 0.9 percent to $1,508.09 an ounce by 12:45 p.m. EDT (1645 GMT), having earlier risen as high as $1,511.10.

Spot silver was up 5.1 percent at $37.42 an ounce.

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Commodities-dollar correlation graphic:

http://r.reuters.com/wex39r

Commodities performance overview:

http://r.reuters.com/nab49r

Is the global economy slowing?:

http://r.reuters.com/kej49r

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Early last week, commodities slumped after economic reports pointed to a slowing U.S. labor market. But precious metals rebounded on Friday after a positive U.S. jobs report suggested the economic recovery would regain speed after stumbling in the first quarter. [ID:nOAT004799]

Silver plummeted 25 percent last week by late Friday as investors liquidated positions. The precious metal's rebound on Monday drew support from broad commodities gains, led by a 4 percent rally in crude oil.

Gold and silver got a boost when ratings agency Standard & Poor's downgraded Greece's credit rating, shining a spotlight on worries over smaller euro zone economies. [ID:nATH006058]

The dollar rose against the euro on Monday for a fourth straight day after the downgrade kept peripheral euro zone debt woes in focus and made investors risk averse. [FRX/]

From a technical perspective, silver looks more vulnerable than gold after last week's rout, analysts said.

"Gold did not break any significant levels on the downside, so long-term investors were not forced out like in silver, where it was pure carnage," said Saxo Bank senior manager Ole Hansen. Prices at 12:46 p.m. EDT (1646 GMT)

LAST NET PCT YTD

CHG CHG CHG US gold 1507.90 16.30 1.1% 6.1% US silver 37.420 2.133 6.0% 21.0% US platinum 1792.80 6.40 0.4% 0.8% US palladium 728.05 11.75 1.6% -9.4% Gold 1507.60 13.55 0.9% 6.2% Silver 37.42 1.82 5.1% 21.3% Platinum 1787.24 5.49 0.3% 1.1% Palladium 726.25 12.37 1.7% -9.2% Gold Fix 1502.00 -3.00 -0.2% 6.5% Silver Fix 38.00 380.00 11.1% 24.1% Platinum Fix 1791.00 5.00 0.3% 3.5% Palladium Fix 726.00 6.00 0.8% -8.2% (Additional reporting by Jan Harvey in London; Editing by David Gregorio)