Gold rises 1.5 percent after weak payrolls, posts weekly gain

By Frank Tang and Clara Denina

NEW YORK/LONDON (Reuters) - Gold rose 1.5 percent on Friday, cementing a third consecutive weekly gain, after disappointing U.S. jobs data stirred speculation the Federal Reserve will take a gradual approach to tapering its bond-buying stimulus this year.

The dollar fell broadly and the S&P 500 equities index was flat after a closely watched Labor Department report showed U.S. employers in December hired the fewest number of workers in almost three years.

U.S. nonfarm payrolls rose just 74,000 in December, the smallest increase since January 2011, while the unemployment rate fell 0.3 percentage point to 6.7 percent as more people left the labor force.

Analysts said that falling U.S. labor participation is likely to prompt the Fed to be cautious in trimming its stimulus after the central bank opted to cut its bond purchases for the first time in December.

In addition, gold could be further underpinned by falling equities prices following last year's tumble in bullion prices and stock markets' record run-up, analysts said.

"As the stock market declines, hedge funds and momentum traders are taking profits off their equities positions and rolling them into gold," said Jeffrey Sica, chief investment officer at New Jersey-based Sica Wealth, which manages more than $1 billion in client assets.

Spot gold was up 1.5 percent at $1,245.58 by 2:29 p.m. EST (1929 GMT).

For the week, gold was up almost 1 percent, extending its rise to a third consecutive week, its longest weekly winning streak since August.

U.S. Comex gold futures for February delivery settled up $17.50 at $1,246.90 an ounce, with trading volume about 10 percent below the 250-day average, preliminary Reuters data showed.

Other analysts, however, said the weaker-than-expected U.S. jobs data will boost gold prices in the short term only, because an overall improvement in the U.S. economic outlook and a rising interest-rate environment will weigh on the metal's price.

"Gold has been on the firm side this year and this data helps support that but the effect is being moderated by the fact that the Fed has begun tapering ... nobody is now thinking the U.S. economy is near collapsing," Macquarie analyst Matthew Turner said.

Silver, meanwhile, rose 2.9 percent to $20.11 an ounce. Platinum was up 1.1 percent at $1,428.10 an ounce, while palladium gained 0.8 percent to $739.10 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by William Hardy, David Evans and Steve Orlofsky)