PRECIOUS-Gold gains after U.S. jobs data keeps focus on govt impasse
* Gold extends gains to 2.9 pct after U.S. ADP jobs data
* Markets focus on U.S. political deadlock
* China holiday dampens physical gold buying
LONDON, Oct 2 (Reuters) - Gold rose nearly three percent on Wednesday, rebounding from an earlier two-month low, with the dollar declining as investors focused on the first U.S. government shutdown in 17 years.
A standoff between President Barack Obama and Republican lawmakers forced the U.S. government to begin a partial shutdown on Tuesday. An even bigger battle looms as Congress must raise the debt limit in coming weeks or risk a default that could roil global markets.
Spot gold gained as much as 2.9 percent to a session high of $1,322.41 an ounce, after weaker-than-expected U.S. ADP employment data added pressure on the dollar.
Prices were up 2.7 percent at $1,320.80 by 1454 GMT. They reached their weakest since Aug. 7 at $1,278.24 on Tuesday. U.S. gold futures for December were up $36.30 an ounce at $1,322.00.
"Today's move, which is a nice counter-reaction to yesterday's fall, is driven by renewed dollar weakness after the ECB meeting and weak U.S. data," Saxo Bank senior manager Ole Hansen said.
"One could argue that while we are still in the situation where there is no clarity on when the U.S. government lockdown will halt, that creates uncertainty for the economic outlook and could mean quantitative easing for longer."
Gold's safe-haven appeal is usually burnished by economic uncertainty and geopolitical tension. Prolonged U.S. budget talks could lift gold's prices, as this keeps pressure on the Federal Reserve to keep its monetary stimulus for an extended period of time.
Accommodative monetary policies favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets.
Bullion posted its biggest daily percentage drop in more than two weeks on Tuesday, following a big Comex sell order and technical selling once prices fell below $1,300 an ounce.
The sharp slide in the previous session stirred market talk of forced liquidation by a distressed commodities fund and of selling related to a fund rebalancing on the first day of the third quarter, although no details could be confirmed.
The European Central Bank left its main interest rate unchanged at a record low of 0.50 percent, as recent economic data has shown a nascent recovery taking hold in the euro zone.
With key buyer China out for National Day holidays through Oct. 7, prices are not seen bouncing back strongly.
Silver rose 3.8 percent to $21.91 an ounce.
Spot platinum was up 1.4 percent at $1,392.99 an ounce and spot palladium gained 0.6 percent to $719 an ounce.
Talks will resume on Thursday to seek an end to a strike that has brought most of the operations of South Africa's Anglo American Platinum to a standstill for nearly one week, the head of the union behind the stoppage said.