(Reuters) - Gold steadied off the two-month highs it hit earlier on Wednesday, when it broke above $1,250 an ounce for the first time since late June as concerns over the pace of U.S. economic growth prompted buying of the metal.

Photo : Corbis

Weakness in the dollar, which fell 1 percent against a basket of currencies as upbeat data from China and Australia lifted risk appetite, also helped lift precious metals prices.

Spot gold was at $1,248.60 an ounce at 1339 GMT, up from $1,248.99 late in New York on Tuesday but below a high of $1,254.65 an ounce hit in earlier trade. It also remained below this week's two-month highs in euro terms.

"Gold has the potential for a false breakout here, as the recent move was not really confirmed on the crosses," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

"Comex open interest has started to improve, which is good, but I would also like to see much more in the way of investment coming in both in ETFs and in particular via cross currencies, as that will prove that gold is acting as a currency in its own right."

On the wider markets, commodities largely firmed, with oil rising 1.7 percent after the Chinese data, having fallen in the previous session, while base metals climbed.

European shares advanced on Wednesday to a near two-week high, while Wall Street also opened higher.

U.S. stock futures earlier briefly pared gains after a report showed U.S. private firms unexpectedly cut 10,000 jobs in August compared with a revised gain of 37,000 in July.

Concerns over the pace of U.S. economic growth are still providing firm support to gold.

Deutsche Bank analyst Daniel Brebner said such fears were leading to "a growing acceptance that if conditions remain poor or deteriorate further, the Fed will move to support growth."

"There is an expectation that deflationary risk is being actively mitigated, and that the risk longer term is increasingly one of inflation," he said.

ETF HOLDINGS RISE

On the investment side of the bullion market, holdings of the major gold and silver exchange-traded products, which issue securities backed by physical stocks of the precious metals, rose on Tuesday, suggesting healthy investor interest.

The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, added another 4 tons of metal to its stocks, while the largest silver ETF, the iShares Silver Trust, increased its holdings by more than 30 tons.

Spot silver prices rose to their highest since mid-May on Wednesday at $19.54, before steadying to $19.32 against $19.34.

The SPDR reversed July's outflows to record a monthly gain in its holdings in August. Swiss bank UBS said gold holdings of the 12 ETFs it tracks rose 1.38 million ounces in August.

"While (that) was modest compared to May's 4.8 million ounces and June's 2.6 million ounces, the trend of rising ETF appetite is important for market sentiment, and indeed the longevity of gold's current rally," it said in a note.

Among other precious metals, platinum was at $1,530.50 an ounce against $1,516.40, while palladium was at $513.50 against $496.70, off a peak of $527.50.

Palladium rose more than 6 percent to its highest since mid-May, lifted by strength in the gold price and weakness in the dollar, which has helped industrial commodities to climb.

The metal is also broadly supported by its fundamentals, traders said, with demand from major consumers like carmakers seen rising as economic growth picks up. "People still like palladium in the longer term," said one trader.

Elsewhere South Africa's National Union of Mineworkers said 8,000 workers at Northam Platinum (NHMJ.J) voted in favor of a strike. The NUM said notice to strike at Northam will be served Wednesday afternoon.

(Editing by Alison Birrane)