By A. Ananthalakshmi SINGAPORE (Reuters) - Gold recovered modestly on Monday to trade just above $1,300 an ounce as escalating tensions in Ukraine sapped risk appetite, hurting stocks and bidding up safe-haven assets. Spot gold fell as much as 0.6 percent to $1,297 early in Asian trading but had settled down 0.2 percent at $1,301.20 by 0632 GMT. Asian stocks were flat and the dollar sagged against the safe-haven yen, as another bout of tensions in the Ukrainian conflict sapped investor confidence. While geopolitical tensions prompted some safe-haven demand for gold, worries over more downside lingered after a 0.6 percent drop on Friday. "There was some selling as Tokyo and China opened this morning sending gold to session lows," said a trader in Sydney. "I wouldn't be surprised if gold prices edge towards the support level at the 200-day moving average of $1,285," the trader said. The lack of strong physical demand and firm equities could hurt gold, the trader said. Among other precious metals, palladium was trading close to a 13-year high hit on Friday on fears over supply from top producer Russia. Silver was hovering near a two-month low. Ukrainian forces raised their national flag over a police station in the city of Luhansk that was for months under rebel control, Kiev said on Sunday, in what could be a breakthrough in Ukraine's efforts to crush pro-Moscow separatists. Russia may tighten retaliatory sanctions against Western nations to include a ban on imports of cars, among other things, if the United States and the European Union impose additional sanctions on Moscow, Vedomosti daily newspaper said. Tensions in Ukraine and the Middle East have largely been responsible for gold's near 8 percent gain this year. In a sign of safe-haven demand, hedge funds and money managers boosted their bullish bets on gold futures and options for the first time in three weeks, data from the Commodity Futures Trading Commission showed on Friday. Meanwhile, physical demand in major buyers China and India has been weak with many consumers expecting prices to fall further. Persistently soft demand in Asia has stoked worries that buying will fail to pick up in the second half of the year, when it is normally stronger, bullion traders and dealers said.