Gold bounced from a 5-week low on Friday as weaker prices ignited buying by bargain hunters and jewelers, but investors were cautious ahead of the release of a U.S. employment report.

Investors shrugged off a small drop in ETF holdings, turning their attention to the June non-farm payrolls data which will set the tone for currencies and equities. Gold tumbled nearly 4 percent on Thursday as funds sold bullion to cover losses in other markets.

Spot gold hit a low of $1,196.00, its weakest since May 25, before rebounding to $1,206.45 per ounce by 0312 GMT, up $7.80 from New York's notional close as the Nikkei edged up and the euro steadied. Gold struck a record $1,264 last week.

Unless we start to see the ETF holdings reduced markedly, then I would expect we'll have a bit of a rebound in the next few days, said Darren Heathcote, head of trading at Investec Australia in Sydney.

If it starts to show significant falls, then it shows investment demand is actually starting to wane and we might be a little bit more concerned about further weakness, but at the moment I would say No.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P) said its holdings dropped to 1,319.219 tonnes by July 1 from a record of 1,320.436 tonnes on June 29 -- the first decline since early June.

U.S. gold futures for August delivery steadied at $1,207.3 an ounce.

Dealers in Singapore noted bargain hunting as well as a surge in physical demand from Thailand, keeping premiums for gold bars steady at 40 to 60 U.S. cents an ounce to the spot London prices.

Light buying from jewelers stirred up physical trading in Hong Kong, where premiums were also steady at 50 cents, but there was a lack of interest from investors.

I think gold will fall if the job data is bad. It will be the same story, said a dealer in Hong Kong, referring to a possible decline in bullion as investors cover losses.

I think people are reluctant to commit too much at the high level. We really have to see if there will be more physical buyers and jewelers at these levels.

Japan's Nikkei clawed higher ahead of the U.S. job data but worries about a double-dip recession lingered as investors moved away from the euro-zone debt concerns to U.S. data pointing to a slowing recovery. .T .N

Labor department releases its June employment report at 1230 GMT. Economists are forecasting a loss of 110,000 jobs in June compared with an increase of 431,00 jobs in May..

The euro held near five-week highs against the U.S. dollar on Friday after rallying three whole cents as speculators were squeezed out of short positions ahead of the job data.