By Jan Harvey
LONDON (Reuters) - Gold edged higher on Friday after two days of losses, but prices held in a narrow range ahead of key U.S. nonfarm payrolls data, which will be closely watched for further clues on the timing of an expected U.S. rate rise.
A recent run of mixed economic data has pushed earlier expectations for the Federal Reserve to announce a rate rise at its June policy meeting back to later this year.
A strong jobs report would support the view that the Fed will act sooner rather than later, pressuring gold. Rising rates tend to lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Spot gold was up 0.2 percent at $1,186.46 an ounce at 0952 GMT, while U.S. gold futures for June delivery were up $3.70 an ounce at $1,185.90.
Prices have been stuck in a narrow range of around $50 an ounce since mid-March, as uncertainty over U.S. monetary policy pushed traders to the sidelines.
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"Gold is desperately looking for direction, which makes today's nonfarm payrolls report particularly important," Ole Hansen, head of commodity research at Saxo Bank, said.
"September or even December is currently the most likely timing of a change in rates," he said. "A bigger-than-expected rise may once again bring forward the timing and support the dollar, thereby creating some headwind."
Analysts polled by Reuters expect nonfarm payrolls to have increased by 224,000 in April after a meagre 126,000 gain in the prior month.
The possibility of a strong jobs report was also reinforced by Thursday's data on weekly claims for unemployment benefits, which held near a 15-year low last week in a sign that the labour market was strengthening.
Reflecting investor anxiety, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 2.7 tonnes to 739.07 tonnes on Thursday.
On the wider markets, European shares surged 1.5 percent, led by a rise in UK stocks after early poll results showed Prime Minister David Cameron's Conservatives were set to govern Britain for another five years.
A surge in sterling helped keep the dollar index little changed, despite a 0.25 percent rise versus the euro.
Silver was up 0.2 percent at $16.36 an ounce, while platinum was up 0.4 percent at $1,133.49 an ounce and palladium was up 1 percent at $785 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Dale Hudson)