Gold held steady on Thursday after drop in prices from a 2-week high spurred light buying from jewelers in Asia, but firm stock markets were likely to weigh while holdings on the ETF fell slightly.

Investors await the release of more data from the United States, particularly the payrolls report, which will offer clues on the health of the economy. Friday's government report on jobs may show a drop of 65,000 in July as census jobs dried up.

Gold hit a high of $1,196.45 an ounce before slipping to $1,194.55 by 2:09 a.m. ET, down 0.05 cents from New York's notional close on Wednesday, when bullion rose to its highest in two weeks above $1,200.

Dealers in Singapore noted physical buying from Indonesia and Thailand, but volume was low, keeping premiums unchanged at 80 cents to the spot London prices.

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It's still a very tricky market to call on the near term. I suppose the positive sign for gold now is that it has held up some pretty heavy selling pressure toward $1,150, said Mark Pervan, senior commodities analyst at ANZ in Melbourne.

If we start to see the relationship being re-established for the negative correlation with the U.S. dollar, then there's a potential for gold prices to move back up into the $1,200 to $1,250 range pretty quickly.

U.S. gold futures for December delivery added $1.4 to $1,197.3 an ounce after hitting a high of $1,199.5.

The dollar steadied on Thursday after it enjoyed a rare rally the previous day when U.S. data beat expectations and sparked a bout of short-covering, although the overall mood remains bearish ahead of a key payrolls report.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), said its holdings fell to 1,281.834 tonnes by August 4 from 1,282.279 on July 28. The holdings hit a record at 1,320.436 tonnes on June 29.

I think the market needs to consolidate first, then we will see if the Chinese will start to buy gold. But we do see light physical buying and short covering after prices slip below $1,200, said a dealer in Hong Kong.

People are cautious ahead of the payrolls data, he added.

China said on Tuesday it would allow more domestic banks to export and import gold as part of steps to encourage more liquid trade, which could underpin the country's growing private demand for the metal.

Japan's Nikkei rose more than 1 percent on Thursday, after U.S. stocks firmed in thin trade on Wednesday as retailers' earnings and a report showing a slight improvement in private employment boosted optimism ahead of Friday's payrolls report. .T .N

(Editing by Himani Sarkar)