Gold neared two-week highs on Thursday, after a surprise rate cut from China, although investors were wary of pushing the price aggressively ahead of an expected European Central Bank rate cut later in the day and key U.S. jobs figures on Friday.

China's central bank cut interest rates for the second time in two months on Thursday in the latest attempt to bolster slowing growth in the world's second-largest economy.

Benchmark lending rates will be lowered by 31 basis points to 6 percent, and deposit rates will be reduced by 25 basis points to 3 percent, the People's Bank of China said in a statement on its website.

Spot gold was up 0.4 percent at $1,620.99 an ounce by 1123 GMT, extending modest gains made earlier ahead of the ECB meeting at which policymakers are widely expected to cut rates to record lows to contain the debt crisis.

Bullion is up more than 1 percent on the week, potentially heading towards its first back-to-back weekly gains since late February.

Overall, rate cuts by China, the ECB, and the U.S. are all positive for gold, on a slightly longer view than just one day for the simple reason that with inflation where it is, you start cutting interest rates of course then real interest rates get lower. So we see it as a bullish development for gold, and most of the other precious metals should be benefit from that, Walter de Wet, analyst at Standard Bank, said.

Like many other commodities gold has been struggling under a lack of direction and this might give it a little more impetus. We think gold will go above $1,900 in the last quarter on exactly these reasons.

Low real interest rates, which strip out the effect of inflation, make gold more attractive to own, given that it bears no yield or dividend that can be eroded by an environment of loose monetary policy. Investors rely on increases in its outright value for a return on their investment.

The Bank of England left rates unchanged and launched a third round of quantitative easing, to the tune of 50 billion pounds.

Friday's June U.S. employment data is likely to reflect the impact of the euro zone crisis and weak economic data and this could encourage the Federal Reserve to take more measures to stimulate economic growth.

The U.S. monthly jobs report is expected to show 90,000 workers were added to nonfarm payrolls in June and the unemployment rate held at 8.2 percent. ECONUS

The May report showed the slowest growth in payrolls in a year and revived speculation that the Fed could resort to more asset purchases to anchor borrowing rates to boost the economy, particularly ahead of this November's presidential election.

Softer economic data has put pressure on central banks to take a more accommodative monetary stance to help nurse the global economy back to health.

Business surveys continue to point to persisting economic weakness in the euro zone and the UK. Both the ECB and the Bank of England...have gone beyond conventional policy by buying assets or providing unusually large loans to banks, Credit Suisse said in a research note.

Given weak growth and falling inflation, we nevertheless expect further easing announcements today. The ECB is likely to cut its main policy rate and the rate it pays for banks deposits.

The latter should help lower already very low short-term money market rates further, and the BoE is likely to expand its asset purchase programme by another 50 billion pounds.


Bhar said gold had managed to secure a platform above $1,600 and was now tackling resistance at $1,620-25. If it could get through that there's $1,640, but that looks difficult if not impossible, he said.

Investment demand for bullion has fallen in recent months on economic uncertainty and has resulted in the dollar emerging as a safe-haven to the detriment of gold.

Holdings of gold in exchange-traded funds, often used as a gauge of longer-term investor demand, have eased this week, but remain less than half a percent off March's record high above 70.89 million ounces.

In India, one of the world's leading consumers of gold, demand for the metal was subdued on Thursday after a drop in the rupee lifted prices during a traditionally lean buying season.

Silver was up 0.6 percent at $28.28 an ounce.

Platinum rose 0.61 percent to $1,481.75, while palladium rose 0.56 percent to $595.25.