* Bullion seen in tight range ahead of Friday's U.S. payrolls
* Coming up: U.S. weekly jobless claims at 1230 GMT (Updates prices)
By Manolo Serapio Jr
MANILA, Aug 6 (Reuters) - Gold struggled to pull away from a 5-1/2-year low on Thursday after more upbeat U.S. economic data bolstered prospects that the Federal Reserve could lift interest rates as soon as next month.
A surge in U.S. services industry activity to a near-decade high suggested solid economic momentum that strengthens the case for a U.S. interest rate hike this year, the first since 2006. ID:nL1N10G15Y
Investors will be eyeing U.S. nonfarm payrolls data due on Friday, with economists polled by Reuters predicting employment in July to have increased at the same pace as June's 223,000 rise. USNFAR=ECI
"If it's in excess of 250,000, I think that will seal the deal for a September rate hike," said Howie Lee, analyst at Phillip Futures in Singapore.
A strong U.S. employment report could send gold below $1,080, he said.
"(That) appears to be a level that many traders have put their stop-loss in because every time it breaches that level there's a swift decline," said Lee, adding bullion could fall as low as $1,060.
Spot gold XAU= was up 0.1 percent at $1,086.20 an ounce by 0633 GMT. The metal has been stuck below $1,100 since breaching that support level after a deep rout in late July that pushed it as far as $1,077, its weakest since February 2010.
U.S. gold for December delivery GCcv1 was flat at $1,085.70 an ounce.
Expectations that the Fed could increase rates at its next policy meeting in September grew louder this week after Atlanta Federal Reserve President Dennis Lockhart said only a "significant deterioration" in the U.S. economy would make him not support a rate hike next month. ID:nL1N10F25P
But Fed Governor Jerome Powell said policymakers had not yet decided whether to raise interest rates next month, adding more recent employment data had been mixed. ID:nL1N10G0YJ
A looming hike in U.S. interest rates dims the appeal of non-interest yielding gold, instead pulling more funds to the dollar which on Wednesday hit its highest since April versus a basket of currencies.
The decline in holdings of SPDR Gold Trust GLD , the world's largest gold-backed exchange-traded fund, continued on Wednesday, to 21.47 million ounces, the lowest since September 2008. GOL/ETF
In other metals, spot palladium XPD= gained 1.3 percent to $598.50 an ounce and platinum XPT= rose 0.3 percent to $950.24, both still near multi-year lows reached earlier this week. Silver XAG= was up 0.3 percent at $14.60 an ounce.