* Strong U.S. data stokes speculation of interest rate hike
* Dollar index near two-week highs
* Palladium prices hit highest since Jan. 2001 (Updates prices, adds comment)
By Clara Denina
LONDON, July 7 (Reuters) - Gold fell on Monday as the dollar firmed on speculation of an earlier-than-expected hike in U.S. interest rates following strong jobs data, which dented investment demand for the metal.
Gold has been under pressure since data on Thursday showed U.S. employment growth jumped in June and the jobless rate closed in on a six-year low, evidence of brisk economic growth.
The numbers led investors to bring forward their views on timing of the first rate hike by the U.S. Federal Reserve to the middle of 2015, although most economists said that more data was needed.
An interest rate rise would encourage investors to withdraw money from non-interest-bearing assets such as gold.
Spot gold slipped 0.5 percent to $1,313.40 an ounce by 1349 GMT, while U.S. gold futures for August delivery were down 0.5 percent at $1,314.30 an ounce.
The dollar was up for a fifth straight day to trade near its highest in almost two weeks against a basket of currencies. It gained support from the steady climb in U.S. bond yields since last week’s robust U.S. jobs report.
“The stronger U.S. dollar triggered some light stops this morning,” Afshin Nabavi, head of trading at MKS, said. “The market will be awaiting the (Fed meeting) this Wednesday to see where the dollar is heading for.”
“(We’re seeing) the good jobs data (being weighed) against the major problems in the Middle East,” he said. “That’s why I think the FOMC this week ought to be more important than the ones in the past.”
Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest, as these are viewed as a key indicator of Fed action in the coming months, analysts said.
Speculators raised net long positions in gold by 22,573 contracts to 136,929 in the week to July 1, data from the Commodity Futures Trading Commission showed on Friday.
Physical demand showed some sign of improvement after remaining subdued for months, while selling of recycled gold increased as prices moved above $1,300 an ounce, traders said.
“This is likely to cap the upside for the time being, while investor bargain hunting is expected to lend ongoing support to the metal between $1,300 and $1,310,” German refiner Heraeus said.
Among other precious metals, silver fell 1.3 percent to $20.85 an ounce, while platinum was up 0.4 percent to $1,497 an ounce.
Palladium rose 0.4 percent to $862.967, having earlier reached a fresh 13-year high of $867 an ounce on strong demand from the auto industry, which uses the metal in catalytic converters in vehicle engines.
Palladium had a boost from last week’s data showing that U.S. auto sales hit an eight-year high in June and from continued supply worries from major producer South Africa.
South Africa’s Impala Platinum said on Monday workers were continuing a wildcat strike over wages at its Marula mine. Around 2,000 workers affiliated with the National Union of Mineworkers (NUM) downed tools at the mine on Friday, demanding higher wages. “The work stoppage is still continuing today,” Implats spokesman Johan Theron said. (Additional reporting by Jan Harvey in London and A. Ananthalakshmi in Singapore; editing by Jane Baird and David Evans)