Gold rose for a second day as investors weighed President Donald Trump's tax bill, which is expected to widen the US deficit.

Bullion rose as much as 1.7%, paring losses from the past two weeks, while US stocks weakened and the dollar hovered near a three-year low. The US Senate passed a bill that combines $4.5 trillion in tax cuts with $1.2 trillion in spending cuts.

The US government's push for a spending bill means that "fiscal risks are likely to come to the fore," analysts at Commerzbank AG said in a note, potentially benefiting bullion's safe-haven appeal.

Gold's gains eased slightly after better-than-expected US jobs data came in, dampening the prospect of further monetary easing that tends to benefit the non-interest-bearing precious metal. The S&P 500 slumped after a rally that pushed stocks to back-to-back all-time highs.

Gold is up more than a quarter this year, trading about $160 below its April record, supported by rising trade and geopolitical risks. Uncertainty over the long-term impact of Trump's tariffs and fiscal agenda on the economy has caused the dollar to fall nearly 11% in the first six months of the year, its worst performance since 1973. That makes gold cheaper for buyers in most other currencies.

"Gold, despite its recent losses, has the most upside potential in the short term if the U.S. dollar continues to decline," Commonwealth Bank of Australia analyst Vivek Dhar said in a note. Read More: Goldman Sachs Extends Fed Rate Cut Forecast to September

Spot gold rose 1.2% to $3,342.65 an ounce as of 12:40 p.m. in New York. The Bloomberg Dollar Spot Index was flat, after falling 0.5% on Monday. (alg)

Source: Bloomberg