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Gold cuts loss after weak ISM data

NEW YORK/LONDON (Reuters) - Gold ended lower on Friday but bounced up from three-day lows after ISM service sector data came in weaker than forecast and the dollar fell.

A saleswoman stands behind the showcased gold necklaces at a jewellery showroom in Agartala, capital of India's northeastern state of Tripura, August 18, 2010. REUTERS/Jayanta Dey

Silver climbed to its highest level since March 2008 as industrial metals rallied on a U.S. labor market report that was much less weak than feared.

That same U.S. non-farm payrolls data pushed gold to session lows in early trade, as investors unwound safe-haven bids.

Gold retraced some losses on the tepid service sector report, and as investors shored up their positions ahead of the long U.S. holiday weekend. New York commodity and financial markets will be shut on Monday for the U.S. Labor Day holiday.

Spot gold slipped to $1,246.70 an ounce by 3:36 p.m. EDT from $1,250.74 an ounce late Thursday.

COMEX December gold futures lost $2.30 to settle at $1,251.10 an ounce on the COMEX division of the NYMEX. It had tumbled to a three-day low at $1,239.20 after the labor report.

Later, an industry report showed the U.S. non-manufacturing sector grew in August for an eighth straight month, but at a slower pace than July and at a rate that was below expectations.

Further, the ISM report’s employment component fell to 48.2 from 50.9, and new orders dipped sharply to 52.4 from 56.7, suggesting a slowdown in the sector.

The weak service sector reading helped counteract the boost to risk appetite from the report that U.S. non-farm payrolls fell by only 54,000 in August. Economists had forecast a decline of 100,000 jobs.

“I think there was some knee-jerk selling right after the jobs number came out. And it got a little bit overdone. The entire move down came on the number,” said Sterling Smith, analyst for Country Hedging Inc. in St. Paul, Minnesota.

“The rest of the day gold was gathering strength on the weaker dollar,” Smith added.

Analysts said gold remains in a longer-term uptrend, noting that while the jobs data were not as weak as expected, they still did not paint a glowing picture of the U.S. labor market. (Graphic: link.reuters.com/fym39n )

Societe General analyst David Wilson noted that recent U.S. data has tended to point toward a relatively soft recovery.

“There is still an overall sense of caution, which should still be supportive for gold,” he said.

Smith said he sees gold reaching new all-time highs by the end of September. But, he added, a light economic calendar next week and 2 holidays might keep trade light and ranges slim.

ETF HOLDINGS FALLS

Recent strength in gold prices notwithstanding, physical demand for the precious metal was muted.

The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust GLD.P, reversed the inflows it reported over the last week, with its holdings falling more than 9 tons to 1,294.908 tons on Thursday. <GOL/SPDR>

Meanwhile, Indian gold buying was stunted for a second day as traders were cautious about placing fresh orders after prices traded near a record high, dealers said.

Among other precious metals, silver was bid at $19.85 an ounce against $19.58, having earlier hit a new near 2-1/2 year high at $19.92 an ounce.

Technical analysts at Barclays Capital said the metal had re-established its uptrend after breaking through its June high at $19.47 an ounce earlier this week.

“We are bullish on silver, looking for an eventual test of the 2008 high of $21.35,” said ScotiaMocatta in a note.

Reporting by Carole Vaporean; Editing by David Gregorio

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