By Miho Yoshikawa TOKYO (Reuters) - Gold inched back up to hover near $1,000 on Friday ahead of the release of key U.S. employment data expected to provide direction for currency markets, currently the main driver for precious metals. If non-farm payrolls come in weaker than the expected 180,000 job losses, it could renew fears about recovery in the world's largest economy and bolster the dollar, seen as a safe haven. Gold is often viewed as an alternative to holding the dollar and benefits from weakness in the U.S. currency, which makes it more affordable for those buying in other currencies. Gold was at $999.85 an ounce at 1:38 a.m. EDT, up 0.1 percent from the notional close in New York of $998.50. U.S. gold futures for December delivery were at $1,001 an ounce, virtually unchanged from $1,000.7 on the COMEX division of the New York Mercantile Exchange. After gold's 8.7 percent rise in the three months to September, its strongest performance since the first quarter of 2008, it was unclear whether the precious metal would make a sustained rise to test the record high $1,030.80 per ounce set in March 2008. "After the sell-off last week it's struggling to gain traction above $1,000, and as we've seen it get back and then dip twice now," said Darren Heathcote, head of trading at Investec Australia in Sydney. He said, however, that there was fundamentally sufficient support on the downside from rising oil prices, which fans fears of inflation, and the sluggish state of the U.S. economy. "Ultimately support is probably going to come around $985 on the bottom," Heathcote said. Others said there was insufficient support for gold from the physical side. "Supply and demand fundamentals are capping the gold price. Scrap is becoming more available and jewelry demand goes down every time the price goes up," said Tony Parry, a gold analyst at Sydney-based Resource Capital Research. He added: "The first quarter crisis-driven demand for gold-backed ETFs almost evaporated in the second quarter with an 88 percent fall in funds flow into ETFs." The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1,095.327 metric tons on October 1, unchanged from the previous business day. "We expect trading in the $950-$1,000 band over the next six months, with more risk of a sustained break below $950 than above $1,000," Parry said. The U.S. dollar retained broad gains on Friday as investors cut short positions and booked profits in higher-yielding currencies ahead of the U.S. payrolls report.

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