* U.S. GDP, nonfarm payroll data expected this week
* Markets fear December tapering on strong economic data
* Prices could drop to $1,229 -technicals
(Adds comment, updates prices) SINGAPORE, Dec 2 (Reuters) - Gold dropped on Monday, with investors jittery ahead of key U.S. data this week that could provide clues on when the Federal Reserve will begin scaling back its monetary stimulus. U.S. data including nonfarm payrolls, third quarter GDP and manufacturing PMI will be released this week, giving more insight into the strength of the economy. A strong recovery could prompt the Fed to begin cutting back its $85 billion in monthly bond purchases, denting gold's appeal as a hedge against inflation. The U.S. central bank next meets on Dec. 17-18, when it could decide the fate of its stimulus. "The market is already short and people are being careful not to go too short before the holiday season," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. "I don't expect much movement (in gold prices) until the new year." But the nonfarm payroll report on Friday could prompt some price action, Ikemizu said. Spot gold had fallen 0.5 percent to $1,245.85 an ounce by 0735 GMT. It ended November trading on Friday down 5.4 percent, its biggest monthly loss since June. The metal has lost over a quarter of its value this year due to record outflows from gold-backed exchange-traded funds as investors shifted money to rallying equities. Markets seem to have already priced in a possible stimulus tapering from this month due to strong economic data, with gold prices trading below $1,300 an ounce for over three weeks. "Repeated failure to surpass $1,260 levels could bring in more sellers when the price gains," analysts at al bogari Islamic Gold said in a note. "Technically, a downtrend still persists in the gold market." Physical demand has picked up at lower price levels but not to the same extent as earlier this year when a $200-an-ounce drop in two days prompted record levels of buying. Demand could pick up again sharply if prices fall below $1,240, said Standard Bank's Ikemizu.
PRICES AT 0735 GMT
Metal Last Change Pct chg YTD pct chg Spot gold 1245.85 -6.14 -0.49 -25.6 Spot silver 19.81 -0.14 -0.7 -34.58 Spot platinum 1363.75 6.55 0.48 -11.16 Spot palladium 713.5 -5 -0.7 3.11 Comex gold Dec3 1245.6 -4.8 -0.38 -25.67 Comex silver Dec3 19.835 -0.198 -0.99 -34.56 Euro 1.3603 DXY 80.547
COMEX gold and silver contracts show the most active months
(Reporting by A. Ananthalakshmi; Editing by Joseph Radford and Tom Hogue)