* U.S. nonfarm payrolls increase 255,000 in July
* BoE rate cut supports gold weekly gain
* Holdings of SPDR Gold Trust up on Thursday (Updates prices, adds comment)
By Clara Denina
LONDON, Aug 5 (Reuters) - Gold fell as much as 1.2 percent on Friday, as the dollar rose after U.S. data showed employment increased more than expected in July, raising the probability of an interest rate hike from the Federal Reserve this year.
Nonfarm payrolls increased by 255,000 jobs last month as hiring rose broadly after an upwardly revised 292,000 surge in June, the Labor Department said on Friday. gold XAU= , steadier initially, fell to one-week low of $1,344.85 an ounce and was down 1.1 percent at $1,345.51 by 1326 GMT.
Deutsche Bank (DE:DBKGn) analyst Michael Hsueh said that investors will now monitor movements on 10-year real yields, relative to which gold looks overpriced.
Deutsche Bank expects a single U.S. rate hike this year.
The benchmark 10-year U.S. Treasury yield US10YT=RR hit session highs of 1.549 percent after the data.
Gold is highly sensitive to rising U.S. interest rates, as the opportunity cost of holding the non-yielding asset increases while boosting the dollar, in which it is priced.
The dollar .DXY rose 0.5 percent against a basket of six major currencies and global stock markets gained after the data.
Economists polled by Reuters had forecast payrolls increasing 180,000 in July and the unemployment rate dipping one-tenth of a percentage point to 4.8 percent.
Gold had benefited after the Bank of England cut interest rates to next to nothing on Thursday and unleashed billions of pounds of stimulus to cushion the economic shock from Britain's vote to leave the European Union. metal reached a more than two-year highs on July 6, as investment demand rose.
The view that central banks will find it very difficult to exit such widespread use of super-accommodative monetary policy favours gold, Deutsche Bank's Hsueh said.
"With that being the trend elsewhere, (the Fed) have difficulty in breaking up from the pack without having a negative effect on its own economy."
Physical gold sales remained sluggish in Asia this week, but appetite is expected to pick up with festive seasons approaching in top markets India and China. of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, rose 0.37 percent to 973.21 tonnes on Thursday. GOL/ETF
Among other precious metals, spot palladium XPD= was down 0.6 percent at $699.40 an ounce. The metal, used in autocatalysts and as an investment, was heading for its first weekly loss after six weeks of gains.
"If supply uncertainty starts to fade and economic data in Europe disappoint, sentiment (towards palladium) could change for the worse," ABN Amro said in a note.
Spot platinum XPT= was down 1.1 percent at $1,147.95, after touching its highest since April 2015 at $1,177.40 on Tuesday, while spot silver XAG= fell 1.7 percent to $19.89 an ounce.