Gold set for best week in 10 mths, traders cautious ahead of data

SINGAPORE (Reuters) - Gold was heading for its best week in over 10 months on Friday as a modest bounce in oil prices boosted demand for the metal as an inflation-hedge, but investors were nervous ahead of a key U.S. jobs report that could trigger sharp moves.

FUNDAMENTALS

* Spot gold was little changed at $1,204.80 an ounce by 0050 GMT, after dropping 0.3 percent in the previous session.

* The metal was set for a 3-percent gain for the week - its biggest jump since February.

* But its outlook for the day depends on the U.S. nonfarm payrolls report due at 1330 GMT.

* The report is keenly watched as a gauge of economic strength and for its impact on the dollar and the Federal Reserve's monetary policy.

* The report is expected to show that employers added 230,000 new jobs last month, and the unemployment rate is seen remaining unchanged at 5.8 percent, according to analysts polled by Reuters.

* A strong report could prompt the Fed to raise rates soon. Investors fear higher rates could dull the appeal of gold, a non-interest-bearing asset. A weak report on the other hand could boost the appeal of safe-haven gold.

* In recent months, strong U.S. data and a robust dollar had pushed gold close to four-and-a-half-year lows.

* Gold prices were also tracking central bank developments in Europe.

* On Thursday, the European Central Bank put off until next year a decision on whether to increase its stimulus, a delay that indicated rates will not be pressured lower for the time being.

* The resulting rally in the euro knocked the dollar index from a 5-1/2 year high. [USD/]

* In other news, a reform to Venezuela's central bank law will allow the country to hold international reserves in a broader range of currencies than before as well as in diamonds and precious metals.

* For the top stories on metals and other news, click [TOP/MTL] or [GOL/]

MARKET NEWS

* Asian shares edged higher in early trade on Friday, while the dollar marked time ahead of the U.S. jobs report.

(Reporting by A. Ananthalakshmi; Editing by Joseph Radford)