Gold extends gains; awaits U.S. payroll data

SINGAPORE, Mar 9 (Reuters) Gold extended gains on Friday as a recovery in global equity markets soothed investor nerves and encouraged buyers back into the market.

Spot gold rose as high as 3.25 an ounce and was at 2.60/653.60 by 0727 GMT, up from 0.90/651.90 late in New York on Thursday, when it shrugged off a firmer dollar and hit an intraday high of 5.70.

Gold has rebounded as much as 3.7 percent this week since hitting a six-week low of 2.30 on Tuesday, when risk-averse investors sold portfolio assets, including gold, to cover their losses following a surge in the yen and a fall in global stocks.

''Frayed nerves have progressively improved during the course of the week and buyers have re-entered the markets, erasing the majority of the losses,'' said Investec Australia in a report.

''Even if last weeks sell-off does turn out to be just a correction; an important lesson should be drawn from last week's proceedings: When things go south they go south quickly,'' it said.

Asian stocks rose on Friday, with Tokyo's Nikkei average up 0.43 percent, amid signs globally that investors are tentatively shifting funds back into riskier assets.

However, investors remained cautious ahead of the release later in the day of U.S. payroll data that could determine the direction of the dollar.

Shares also got support from weakness in the yen, which may signal a pause in the recent unwinding of so-called carry trades, in which investors borrow low-yielding currencies to buy higher-yielding assets.

Gold's rise to breach a key resistance of 5 on Thursday suggested the metal was on a recovery path, especially since bargain hungers have been buying it at lower levels, said dealers.

Tensions between Iran and the United Nations, generally firm crude oil and a softer dollar had propelled gold to a 9-month high of 9 last Monday.

''Long-term sentiment remain unchanged. It's a bullish mood.

Resistance lies at 5 and 6, and the next one is 1,'' said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

''Short-term trend is a bit choppy. I think people are still cautious after a big drop. 5 should be the first support,'' he said.

The most-active gold contract on Tokyo Commodity Exchange rose for a second session on Friday but gains were limited after a 4 percent recovery from this week's low and ahead the U.S. data.

Benchmark gold futures on TOCOM, currently February 2008, ended 4 yen per gram higher at 2,484 yen.

''The momentum looks weak today. That's because a rally yesterday was a bit overdone,'' said Satoshi Matsunaga, analyst at Mitsui Bussan Futures Ltd.

The contract rose to 2,702 yen on Feb. 26, the highest for any benchmark since September 1985, before reversing course to fall as low as 2,378 yen on Tuesday this week.

The dollar rose to 117.36 yen, moving away from the three-month low of 115.16 yen hit on Monday.The euro firmed to .3148.

In other precious metals, silver edged up to .97/13.02 an ounce from .93/12.98 late in New York.

Platinum fell to ,202/1,207 an ounce from ,209/1,214.

Palladium slipped to 8/353 an ounce from 0/355 late in New York.

REUTERS CS RS1411