Gold ends tad up on dollar drop after weak payrolls

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold ended slightly firmer in mixed trade on Friday after the U.S. government reported surprisingly weak jobs data, as the dollar softened against the euro and oil ticked up.

"We are pretty much range-trading here in gold, as the U.S. dollar didn't react too much after the figures," said Commerzbank senior trader Michael Kempinski.

"We see some physical demand at $730 and lower," he added.

Spot gold was at $734.10 at 3:28 p.m. EST (2028 GMT), up 0.5 percent from Thursday's close of $732.95.

U.S. December gold futures settled up $2.00 at $734.20 an ounce amid light volume on the COMEX division of the New York Mercantile Exchange.

Labor Department data showed U.S. employers cut payrolls by 240,000 in October. The unemployment rate hit 6.5 percent, its highest since 1994. The dollar declined as investors worried about the outlook for the U.S. economy. <USD/>

Analysts said a bounce in the dollar could put a damper on gold's rise in the near term.

"The dollar is likely to remain fairly strong, so that will cap rallies (in gold), and the oil price is not providing much support," said Calyon analyst Robin Bhar.

"All the time we have worries about the economy and the financial system, so we will see safe-haven buying, but I suspect on dips," he added.

Gold has been pressured in recent months by a recovery in the dollar as the economic crisis has spread.

Strength in the U.S. currency tends to weigh on gold, often bought as a currency hedge. Some forex analysts believe the dollar will stay firm despite negative U.S. economic data.

Still, fears over the outlook for the global economy are boosting the precious metal's appeal as a haven from risk.

A series of interest rate cuts in Europe on Thursday boosted stock markets, but gains were not sustained.

"While (the cuts) add to the enormous monetary stimulus already in motion globally, markets remain unconvinced that it is enough to save the world from a major economic downturn," noted Standard Bank analyst Walter de Wet.

Low interest rates should boost the appeal of gold, as it will cut the opportunity cost of investing in noninterest bearing assets such as the precious metals.