* Dollar index falls after U.S. services report
* Political turmoil in Egypt, Portugal support
* U.S. market closed on Thursday for Independence Day
* Investors brace for Friday's jobs report
(Adds comment, changes byline and dateline, pvs LONDON)
By Josephine Mason and Clara Denina
NEW YORK/LONDON, July 3 Gold rose almost one
percent on Wednesday, as the dollar remained under pressure
after mixed U.S. data and political turmoil in Egypt and
Portugal triggered safe haven buying.
Volumes thinned as traders were reluctant to take big
positions ahead of the U.S. Independence Day holiday on Thursday
and key U.S. nonfarm jobs data on Friday.
Spot gold rose as much as 1.5 percent to a session
high of $1,259.60 an ounce earlier and was at $1,252.91 an ounce
at 2:55 p.m. EDT (1855 GMT), up 0.93 percent.
U.S. gold futures for August delivery settled up
$8.5 at $1,251.9 an ounce.
"Today's strength is more to do with the dollar and equities
markets after bad euro zone data, mixed U.S. numbers and renewed
worries about Portugal and Greece," VTB Capital analyst Andrey
The shake up in the Portuguese government and nervousness
over the state of Greece's next tranche of bail-out money
returned attention to the European debt struggle and coupled
with unrest in Egypt, triggered some safe-haven buying.
Even so, gold was knocked off its intraday highs after data
showed a pick up in the U.S. and reinforced expectations the
Federal Reserve will curb its stimulus program this year. The
dollar fell off an earlier five-week peak.
The U.S. private sector created more jobs than expected in
June, while U.S. initial weekly jobless claims fell for a second
Other data was less upbeat. A report showed the U.S.
services sector in June grew at its slowest pace in more than
But analysts said Wednesday's employment data points to an
upbeat jobs report on Friday from the Labor Department, which is
expected to show the economy created 165,000 jobs last month.
"It would be very bad for gold if you get a non-farm
payrolls number good enough for the Fed to taper but at the same
time not strong enough to see any inflationary pressure coming
through," BofA Merrill Lynch analyst Michael Widmer said.
Gold has jumped 7 percent after hitting $1,180, its lowest
price in almost three years, last Friday, but many traders view
the gains as little more than a "dead-cat bounce," slang for a
small but temporary rally that follows significant declines.
"The bounce will be viewed as just that until there is a key
indicator that would change market perceptions of a need for
financial protection," said Carlos Perez-Santalla, a broker at
Gold posted its biggest ever quarterly loss of almost 23
percent for the April-June period after Fed Chairman Ben
Bernanke announced the U.S. economy was recovering strongly
enough for the bank to begin tapering its stimulus in the next
This would support a rise in interest rates, making gold
However, the exact timing of the Fed's move remains unclear.
DEMAND STILL LOW
Sentiment remained guarded however as outflows from
exchange-traded funds (ETFs) continued and physical demand
failed to pick up after prices plumbed a three-year low of
$1,180.71 on Friday.
Holdings of the world's largest gold-backed exchange-traded
fund SPDR Gold Trust fell 0.37 percent to 964.69 tonnes on
Tuesday, hitting fresh lows since February 2009.
Physical demand for gold has not emerged as it did in April,
when prices fell the most in 30 years, and premiums remained
steady in main Asian markets as refineries prepare to shut for
house-keeping during the summer period, traders said.
Silver tracked gold's gains, up 2 percent to $19.74 an
ounce. Platinum fell 1.6 percent to $1,341.75 an ounce and
palladium slipped 0.17 percent to $682.72 an ounce.
(Editing by Jeff Coelho, David Evans and Chris Reese)