PRECIOUS-Gold rallies to 3-week high after U.S. job data

Tue Oct 22, 2013 2:38pm EDT

* Data fuels expectations Fed will continue stimulus

* Dollar at 8-month low versus basket of currencies

* Shares up after U.S. nonfarm payrolls

* SPDR holdings drop 10.5 T, biggest 1-day fall since July (Updates prices)

By Marina Lopes and Clara Denina

NEW YORK/LONDON, Oct 22 (Reuters) - Gold rose over 2 percent to three-week highs on Tuesday as weak U.S. jobs figures raised expectations the Federal Reserve will continue into next year its massive stimulus program that has bolstered bullion prices.

Nonfarm payrolls rose by 148,000 in September, the Labor Department said, below the 180,000 forecast in a Reuters poll, increasing worries that the world's largest economy was losing momentum even before the government shutdown this month.

"We were not even close to the 180,000 number...the main takeaway is that Fed tapering is still a long way away, probably not for this year and that's the reason why everything shot up - equities, commodities and gold in particular," Societe Generale analyst Robin Bhar said.

Signs the U.S. economy lost steam even before the acrimonious budget fight could convince the Fed to hold off any decision on scaling back its bond-buying stimulus until the extent of the economic damage from the fiscal standoff is clear.

"Consensus is almost universal that the Fed is not going to tighten, probably until March," Bill O'Neill, partner of commodities investment firm LOGIC Advisors.

Buying continued after upbeat construction spending numbers for August.

Spot gold rebounded from early morning losses after the data, rising over 2 percent to as high as $1,344.46 an ounce, its highest since Sept. 30, by late morning.

It was up 1.9 percent at $1,340.1 an ounce by 2:25 p.m. EDT (1825 GMT).

The metal broke above technical resistance at its 100-day moving average of $1,325, with the next area of resistance seen at $1,350.

U.S. gold futures for December rose $26.8, or 2 percent, to settle at $1,342.6 an ounce.

The dollar tumbled to a new eight-month low against a basket of currencies, while global stocks edged up on prospects of a longer spell of super-easy money from the Fed.

Gold has been boosted by increased central bank liquidity and a low interest rate environment over the past few years, which encourages investors to put money into non-interest-bearing assets.

Analysts said investor sentiment was likely to remain subdued, however, after a big drop in holdings in the largest gold-backed exchange-traded fund (ETF), SPDR Gold Trust, which saw outflows of 10.51 tonnes to 871.72 tonnes on Monday.

That was the biggest one-day fall in the fund's holdings since early July.

Physical demand for gold in major consumer India remained subdued ahead of the Diwali celebrations, usually considered an auspicious time to buy jewellery.

"Importers in India are still struggling to adopt the new import and re-export (80-20) regulation while the import tax hikes have already hurt smaller jewellers," VTB Capital said.

In China, premiums to spot London prices remain near lows for the year, traders said.

In other precious metals, silver mirrored gold's moves and rose 2.4 percent to $22.72 an ounce.

Spot platinum was up 1 percent at $1.447.49 an ounce and spot palladium rose 0.3 percent to $749.22 an ounce.

Switzerland's net imports of raw platinum in September fell to their lowest in four months, as exports to China hit a three-month high at 1.903 tonnes, customs data showed. (Editing by Jason Neely, Dale Hudson, Josephine Mason, Leslie Gevirtz and Marguerita Choy)