By Susan Fenton
LONDON (Reuters) - Gold edged up to a three-month high on Thursday, a day after its best day in two weeks, buoyed by expectations that global economic and financial headwinds could make it tough for the U.S. Federal Reserve to raise rates in the near term.
Commodities rallied across the board on Wednesday as the dollar tumbled after William Dudley, president of the Federal Reserve Bank of New York, said that financial conditions have tightened considerably and the weakening global outlook could have "significant consequences" for the U.S. economy.
Spot gold touched $1,147.40 an ounce on Thursday, its highest since Oct. 30, before stabilising. It was up 0.2 percent at $1,145.16 by 0956 GMT, after rallying 1.2 percent on Wednesday, the biggest daily gain since Jan. 20.
Dudley's comments, and weaker-than-expected U.S. services sector data, added to market expectations that the Fed was unlikely to raise interest rates again in March and raised doubts about rate hikes later in the year.
Rising U.S. rates make a non-yielding asset such as gold less attractive.
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"The (Fed funds futures) now sees only a 12 percent probability of a rate hike in March so I am not expecting the price of gold to drop soon," said Bernard Dahdah, an analyst at Natixis, adding he expected it to trade around current levels in the next two months.
Gold has now gained nearly 8 percent since the start of this year as uncertainty about the health of the global economy has made financial markets volatile, pushing investors into safer assets.
Investor focus will soon turn to Friday's non-farm payrolls and INTL FCStone analyst Edward Meir said a weak outcome could sustain the dollar selloff.
"If we get a stronger-than-expected reading, the pendulum might swing the other way, as the Fed 'hawks' recover lost ground in the debate," said Meir.
A Reuters poll forecasts U.S. non-farm payrolls will increase by 190,000 in January, after rising by 292,000 in December.
U.S. gold for April delivery was up 0.4 percent at $1,141.30 an ounce.
Holdings of top gold-backed exchange-traded fund, SPDR Gold Trust, continued to rise, standing at 22.19 million ounces on Wednesday, the most since late October.
Spot silver was up 0.5 percent at $14.757 an ounce, not far below Wednesday's three-month peak of $14.80.
Spot platinum hit a one-month high of $889.87 an ounce, up more than 1 percent, while palladium was down 1 percent at $504.19 an ounce, after reaching a one-month peak of $515.54 on Wednesday.
(Additional reporting by Manolo Serapio Jr. in Manila, editing by David Evans)