* U.S. payrolls data pressures precious metals
* Dollar rises then falls against a basket of currencies
* SPDR Gold holdings <XAUEXT-NYS-TT> steady
(Recasts, updates prices, adds detail/comment)
By Humeyra Pamuk and Michael Taylor
LONDON, Oct 2 (Reuters) - Gold erased initial losses on
Friday, following a spike and subsequent retreat in the dollar
as investors fretted over news of deeper than expected U.S.job
losses in September.
U.S. employers cut a heftier-than-expected 263,000 jobs,
lifting the unemployment rate to 9.8 percent, according to a
government report. []
Gold <XAU=> dipped below $987 on the initial jobs news and
then moved to $998.50 an ounce at 1320 GMT, compared with
$998.50 an ounce on Thursday. Bullion rose to an 18-month high
of $1,023.55 an ounce in September, in sight of the March 2008
record high of $1,030.80 an ounce.
"The knee-jerk reaction was weaker stocks, weaker
commodities ... (the) stronger dollar and the safe-haven element
kicks in when people have a chance to think what the big picture
is," said Simon Weeks, director of precious metals at Bank of
Nova Scotia.
The weaker non-farm payrolls renewed fears about recovery in
the world's largest economy and briefly bolstered the dollar,
seen as a safe haven. []
Gold is often viewed as an alternative to holding the dollar
and benefits from weakness in the U.S. currency, which makes it
more affordable for those buying in other currencies.
"There hasn't been a lot of fresh demand above $1,000, so
you are seeing people taking money off the table to cover
situations elsewhere," Weeks said.
In addition, the heavy long positions built up in the market
made bullion vulnerable to a correction, traders said.
The non-commercial net long position in gold futures on the
COMEX division of the New York Mercantile Exchange stood at an
all-time high of 236,749 lots for the week ended Sept. 22,
figures from the Commodity Futures Trading Commission showed.
U.S. gold futures for December delivery <GCZ9> were at
$997.7 an ounce, versus Thursday's $1,000.7 on the COMEX
division of the New York Mercantile Exchange.
HEAVY LONGS
"We would look for gold to hold the $985-1,020 area but gold
remains at risk to a deeper correction as falling risk appetite
could spook some of the recently added fund longs," said James
Moore at Thebulliondesk.com in a research note.
Moreover, several traders said there was insufficient
support for gold from the physical side.
"Supply and demand fundamentals are capping the gold price.
Scrap is becoming more available and jewellery demand goes down
every time the price goes up," said Tony Parry, a gold analyst
at Sydney-based Resource Capital Research.
The economic downturn and high prices this year have knocked
down demand for gold in Turkey, one of the top consumers of
bullion, which is now heading for the lowest ever recorded
annual import levels.
The world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust <GLD>, said its holdings stood at 1,095.327
tonnes on Oct. 1, unchanged from the previous business day.
[]
Among other precious metals, silver <XAG=> was lower at
$16.07 from $16.32
Platinum <XPT=> was at $1,268 from $1,277.5 and palladium
<XPD=> was at $289.50 from $287.50
(Reporting by Michael Taylor; editing by Keiron Henderson)
