* Gold below 1-month high, set for 2.3 pct gain on week
* Dollar index sets fresh 8-1/2-month low
* Investment, physical demand lacklustre
(Updates prices, adds comment)
LONDON, Oct 25 (Reuters) - Gold steadied below one-month highs on Friday, still set for a second week of gains on the view that sluggish U.S. data would persuade the Federal Reserve to keep its stimulus intact until well into 2014.
Spot gold stood unchanged at $1,346.86 an ounce by 1412 GMT, still not too far from its highest level since Sept. 20 of $1,351.61 hit on Thursday, when it benefited from weaker-than-expected U.S. jobless claims data. It was headed for a 2.3 percent gain on the week.
U.S. gold futures for December delivery were down $3.10 an ounce at $1,347.30.
"The weak employment numbers this week are probably pushing the consensus on QE tapering towards March next year and that does suggest an environment where long-term real yields will be edging lower again and also a weaker dollar, which would be supportive for gold," Deutsche Bank analyst Michael Lewis said.
"For that reason, gold could end the year a little bit firmer but still the long-term trend is that there are problems for the metal ... the dollar will strengthening as economic data gets better."
The dollar traded just above a near nine-month low, hit earlier, against a basket of currencies, as the euro eased from a two-year high after data showed German business morale fell for the first time in six months. U.S. Treasury yields traded near three-month lows.
After 12 years of gains, gold has fallen nearly 20 percent this year on concerns the Fed would begin cutting back its easy-money policy by trimming its $85 billion monthly bond purchases, which have fuelled gold's appeal as a hedge against inflation.
The metal, however, has rallied around 8 percent in less than two weeks as disappointing U.S. economic data and lingering budget uncertainties in Washington increased gold's safe-haven appeal.
As a gauge of investor sentiment, holdings in the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, fell 0.2 percent or 1.8 tonnes on Thursday. An outflow of more than 10 tonnes was seen on Monday followed by an increase of 6 tonnes on Tuesday.
"If you look at fundamental drivers, like investment and physical demand, that remains lacklustre, so we are seeing this as a temporary rebound before prices fall back again," Credit Suisse analyst Karim Cherif said.
The gain in spot prices has further deterred physical demand in most Asian countries.
Premiums on the Shanghai Gold Exchange fell to multi-month lows of $2 an ounce on Friday. That compares with highs of $30 seen in April-May.
However, in India, premiums were at a record high of $120 an ounce as dealers struggled to meet festive demand amid tight supplies.
"In India ... the issues are still very much focused on supply limitations," UBS said.
"The sense is that premiums are elevated and are expected to rise further ... and the expectation is that they (stocks) are likely to run out completely around November."
In other precious metals, silver fell 1.2 percent to $22.39 an ounce, having hit a one-month high of $22.85 in the previous session.
Spot platinum was down 0.1 percent at $1,444.49 an ounce, failing to capitalise on news that South Africa's Association of Mineworkers and Construction Union (AMCU) has declared a wage dispute with the world's largest producer Anglo American Platinum.
Spot palladium fell 1.4 percent to $734.51 an ounce.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Susan Fenton, Pravin Char and David Evans)