By Barani Krishnan and Jan Harvey
NEW YORK/LONDON (Reuters) - Gold sank almost 2 percent to two-week lows on Thursday as upbeat U.S. data heightened expectations the U.S. Federal Reserve may soon rein in its massive stimulus program that has bolstered bullion prices.
The market had earlier surrendered gains as the dollar rose following the European Central Bank's pledge to keep interest rates low.
But selling accelerated and prices fell to $1,365.16 an ounce, the lowest since August 22, after data showed the pace of growth in the U.S. services sector accelerated in August to its fastest pace in almost eight years.
That followed earlier news that private employers added 176,000 jobs in August and new claims for jobless benefits fell to a near five-year low last week.
The data suggest the labor market - key for Fed decisions - is staging a slow-but-steady recovery and could convince the central bank to pull back its $85 billion per month in buying of Treasuries and mortgage-backed securities, dealers said.
"You've had some relatively good (jobs) numbers, which is starting to have sentiment turned that tomorrow's job number will be at least on target," said Frank McGhee, head precious metals trader at Integrated Brokerage Services.
U.S. stocks rose and Treasury notes fell after the data.
For now, safe-haven buying that had propelled prices to three-and-a-half-month highs last week due to rising tensions in the Middle East, has stalled.
Building on Wednesday's 1.5-percent drop, spot gold was down 1.6 percent at $1,368.14 an ounce at 11:50 a.m. EDT (1550 GMT). It was off a session high of $1,399.06 and close to support at $1,358 per ounce, its 100-day moving average.
U.S. gold futures for December delivery were down $22.4 or 1.61 percent at $1,367.8.
Attention will now turn to key U.S. non-farm payrolls data for August on Friday, a barometer of the economic recovery and U.S. monetary policy.
A 15 percent drop in gold prices this year has been driven largely by speculation the Fed will start reducing its quantitative easing programme, with an announcement foreseen at its September 17-18 meeting.
"The main focus is the Fed," Citi analyst David Wilson said. "Everyone is trying to pre-judge what the Fed might do, so if the employment numbers are better than expected it will heighten the sense that tapering will be sooner rather than later, and the reverse if the data's below expectations."
GOLD PRICES EXTEND LOSSES
Two days of losses will underscore expectations that the Syria-fuelled gains last week may have only been temporary as fresh Fed speculation returned to dominate market sentiment. Gold hit $1,433 an ounce last week.
Safe-haven buying has also waned as expectations about the size of a U.S.-led military strike against Syria in response to last month's chemical weapons attack have reduced.
Hong Kong's gold exports to China rose to 129.232 tonnes in July from 111.718 tonnes in June, data from the Hong Kong government showed on Thursday.
Silver was down 1.37 percent at $23.12 an ounce, while spot platinum was down 0.99 percent at $1,473.45 an ounce. Spot palladium was down 1.7 percent at $683.72 an ounce.
Platinum miners in South Africa, the source of three-quarters of world platinum supply, are watching the progress of pay negotiations in the gold sector.
Shares of South African gold producers rose more than 4 percent on Thursday as investors bet unions and management would soon reach an agreement over wages, ending a strike by tens of thousands of miners.
"The more compromising tone struck by the (National Union of Mineworkers) seemed to have had more impact on platinum, in terms of bringing prices down by nearly 3 percent in yesterday's trading, as opposed to gold, which fell only 1.5 percent," Mitsubishi analyst Jonathan Butler said. (Writing by Josephine Mason in New York; Editing by William Hardy and Chris Reese)