PRECIOUS-Gold climbs toward $1,260/oz as the dollar drops

* U.S. dollar falls 0.7 percent

* Market eyeing Friday’s U.S. nonfarm payrolls

* GRAPHIC-2016 asset returns: (Updates prices; adds comment, byline, NEW YORK dateline)

NEW YORK/LONDON, March 3 (Reuters) - 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 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 June.

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 2014.

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