* Asian physical demand supports gold prices
* Palladium rises to highest since June 19 (Updates prices; adds comment, NEW YORK dateline)
By Marcy Nicholson and Maytaal Angel
NEW YORK/LONDON, Sept 7 (Reuters) - Gold fell on Friday as the dollar resumed its rally versus a currency basket after stronger-than-expected payrolls data cemented expectations that the Federal Reserve will raise interest rates in September, in what would be its third hike this year.
A stronger dollar makes dollar-priced gold costlier for non-U.S. investors.
U.S. jobs growth accelerated in August, with wages notching their largest annual increase in nine years, strengthening views the economy was so far weathering the Trump administration's escalating trade war with China. gold XAU= fell 0.4 percent at $1,195.48 an ounce by 2:49 p.m. EDT (1849 GMT), and was on track to close the week down 0.5 percent.
U.S. gold futures GCcv1 settled down 0.3 percent at $1,200.40 an ounce.
"The biggest jump in average hourly earnings this year bashed bonds and drove the dollar higher, which was enough to break gold's two-day winning streak," said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York.
He noted that gold closed under $1,200 for the second time in four weeks "as market ponders if wage pressures are finally emerging, which may tip the Fed towards a December rate hike."
The greenback has soared this year on escalating U.S.-Sino trade tensions, though it has lost some steam this week to rival safe-haven currencies like the yen and Swiss franc even as investors brace for new U.S. tariffs on China. struggling to (see) how the dollar could extend gains from here. Other central banks are becoming hawkish, the pound could come back up and the euro, once the ECB starts tightening. Gold is due for a rally," Fawad Razaqzada, analyst at FOREX.com, said.
An overnight report bolstered the yen after suggesting U.S. President Donald Trump would next take up trade issues with Japan, indicating possible headwinds for the dollar. emerging market currencies .MIEM00000CUS have also recovered their poise versus the dollar.
"The stronger yen versus the dollar is leading to some buying in gold. ... The recent low of around $1,160 in August is really the bottom in gold for now," said Yuichi Ikemizu, Tokyo branch manager, ICBC Standard Bank.
Spot silver XAG= was up 0.2 percent at $14.15 per ounce, while palladium XPD= rose 0.6 percent to $979.40, after tapping the highest level since June 19 at $990.
Platinum XPT= fell 1.6 percent to $778.49.
The global platinum market will be oversupplied by 295,000 ounces this year as both supply and demand of the autocatalyst metal fall by 2 percent, the World Platinum Investment Council (WPIC) said on Thursday.