* Shutdown could delay stimulus tapering -Fed official
* Services ISM data weakens, giving small boost to prices
* Physical demand remains subdued in Asia
(New throughout, updates prices and market activity; new
byline, dateline, previously LONDON)
By Carole Vaporean
NEW YORK, Oct 3 Gold rose on Thursday after
softer U.S. services sector data raised expectations that the
Federal Reserve would delay any reduction in economic stimulus,
especially with September employment data delayed by the U.S.
Early in the session, prices fell as physical demand slowed
and investors booked profits from the previous day's gains that
came on worries about Washington's budget standoff.
Failure to increase the debt limit could push the world's
biggest economy into default and shake markets.
Spot gold steadied around 0.17 percent higher at
$1,316.89 an ounce by 4:12 EDT (2012 GMT), having trimmed early
losses. U.S. gold futures for December were down 0.30
percent or $4.0 an ounce at $1,316.70.
Gold received a brief, modest spike after a shooting outside
the U.S. Capitol building caused a lockdown. But the incident
ended shortly after gunfire was first reported, and gold prices
settled back to modestly higher levels.
The U.S. budget deadlock has shut wide swaths of the federal
government, including some offices that release economic data.
September U.S. employment figures will be delayed from their
regularly scheduled release on Friday.
"The Fed will not be able to cut the stimulus, because they
won't have the employment data. So they can't come up with any
analysis. What if the unemployment rate drops?," said Phillip
Strieble, senior commodities broker at R.J. O'Brien in Chicago.
"People are mostly on hold because we know there won't be
any alteration to the stimulus for the near term," he added.
The lack of official data on the economy could further delay
a reining in of stimulus, Eric Rosengren, head of the Federal
Bank of Boston, said on Wednesday.
Gold has lost nearly a quarter of its value this year as
investors fretted the U.S. central bank would roll back its $85
billion bond-buying stimulus.
Gold rose 2.2 percent on Wednesday, the biggest daily gain
in two weeks, as the dollar fell to an eight-month low and no
end appeared in sight to the U.S. shutdown.
"Every day that the government is shut, it is eating into
GDP," Strieble said, noting that the deteriorating situation in
Washington added to reasons to buy the precious metal.
Gold turned higher initially when the Institute for Supply
Management (ISM) services index fell to 54.4 in September from
58.6 in August, the highest since December, 2005.
The service sector reading followed Wednesday's
weaker-than-expected ADP jobs data, which catapulted gold
"Prices cut losses after the U.S. data but ...I think the
big news is going to be the Oct. 17 meeting for the U.S. budget
talks," Natixis analyst Bernard Dahdah said, adding that gold
will likely fluctuate ahead of that date.
Increased central bank liquidity and low interest rates
encourage investments in non-interest-bearing assets such as
SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund (ETF) and a good indicator of investor
sentiment, said its holdings fell 4.2 tonnes to 901.79 tonnes on
Wednesday, the biggest fall in nearly three weeks.
Physical demand remained weak as China was shut for the
National Day holidays.
Gold premiums in China fell from over $40 an ounce at the
start of July to less than $10 by the end of September, as
prices rose, Macquarie said.
Silver fell 0.46 percent to $21.61 an ounce after
rising 2.8 percent on Wednesday, its biggest one-day gain in two
weeks. Spot platinum was down 1.41 percent to $1,368.99
an ounce and spot palladium dropped 2.34 percent to
$699.22 an ounce.
(Additional reporting by Clara Denina in London and A.
Ananthalakshmi in Singapore; editing by Jason Neely, William
Hardy and David Gregorio)