* U.S. dollar falls 0.7 percent
* Market eyeing Friday's U.S. nonfarm payrolls
* GRAPHIC-2016 asset returns: reut.rs/1WAiOSC
(Updates prices; adds comment, byline, NEW YORK dateline)
By Marcy Nicholson and Jan Harvey
NEW YORK/LONDON, March 3 Gold rose back towards
$1,260 an ounce on Thursday, coming within a hair of a 13-month
high as the dollar was on track to make its biggest one-day
tumble in a month after U.S. data fueled worries over Friday's
U.S. payrolls data.
Spot gold was up 1.4 percent at $1,257.81 an ounce by
2:14 p.m. EST (1914 GMT), after rising to a session high at
$1,259.41, roughly $1 from last month's one-year high.
U.S. gold futures for April delivery settled up 1.3
percent at $1,258.20.
Data showed the U.S. economy's service sector expanded in
February at a slower pace than the prior month.
Fawad Razaqzada, technical analyst for Forex.com and City
Index said this "bodes ill" for Friday's employment report and
caused safe-haven buying in gold.
"While still not quite out of the danger zone yet, it looks
like gold may be able to extend its rally now that the $1,250
level has been taken out," Razaqzada said.
New orders for U.S. factory goods rebounded less than
expected in January, though it was the largest increase since
U.S. nonfarm payrolls are estimated to have risen by 190,000
last month, according to a Reuters poll of economists.
A strong reading may revive expectations that the Federal
Reserve will press ahead with more U.S. interest rate hikes this
year, which would weigh on non-yielding gold.
Saxo Bank's head of commodities research Ole Hansen said he
expected to see pressure on gold only if the reading came in
above 225,000. "That was roughly the average last year, and one
that helped bring about the first rate hike," he said.
"The market most certainly is not prepared to let unfriendly
news spoil the party at the moment," he added.
On Thursday, Dallas Federal Reserve President Robert Kaplan
called for the U.S. central bank to be patient when it comes to
raising rates, citing the effect of tighter financial conditions
on U.S. economic growth.
Shares on major equity markets worldwide touched two-month
highs as concerns eased about global growth. The U.S. dollar
fell 0.7 percent against a basket of major currencies, on
track for its biggest one-day drop in a month.
Holdings of the largest gold-backed exchange-traded fund,
SPDR Gold Shares, rose to the highest since September
Silver was up 1.4 percent at $15.13 an ounce, while
platinum was up 1.5 percent at $945.50 an ounce and
palladium was up 4.2 percent at $536.75 an ounce.
(Additional reporting by Manolo Serapio Jr in Manila; Editing
by David Evans and James Dalgleish)