* U.S. non-farm payrolls data beat expectations
* Palladium on track for biggest weekly drop since Sept
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl
(Releads, updates throughout, adds comment) LONDON, Feb 2 (Reuters) - Gold fell 1 percent on Friday in the wake of stronger than expected U.S. non-farm payrolls data which shored up expectations that the Federal Reserve will press ahead with interest rate hikes this year. That drove the dollar higher against a currency basket, putting it on track for its biggest one-day rise since late October, pressuring gold, which is priced in the U.S. unit.
Spot gold was down 1 percent at $1,334.95 an ounce at 1420 GMT, while U.S. gold futures for June delivery were
$10.30 an ounce lower at $1,337.60 an ounce. Labor Department data showed U.S. job growth surged in January and wages rose further, posting their largest annual increase in more than 8-1/2 years. That supported expectations that inflation will rise this year. "This should cause rate hike expectations, lift the U.S. dollar and weigh on gold," Commerzbank analyst Carsten Fritsch said. "In particular the wage rise is eye-catching as this could ultimately push core inflation towards the Fed's 2 percent target." "The Fed already raised its inflation view in the statement this week," he said. The U.S. bond market's gauges of inflation expectations added to their earlier rise on Friday and U.S. Treasury yields rose further, with the 10-year hitting a four-year high as the data intensified the current bond market rout. The dollar's bounce put it on course for its first weekly increase in seven weeks, after the currency slid to a three-year low last week. Its weakness was a key factor driving gold to 17-month highs on Jan. 25 at $1,366.07 an ounce. "For gold it is more about the U.S. dollar," ABN Amro analyst Georgette Boele said. "Even if rate hike expectations go up but the U.S. dollar doesn't, gold will perform well." On the physical side of the market, demand improved this week in major consumer India, with jewellers resuming purchases after the government kept import taxes on the metal unchanged. Demand remained subdued in most other centres in Asia. Holdings of the world's largest gold-backed exchange-traded
fund, New York's SPDR Gold Shares , were on track to
decline for the first week in three this week, indicating more subdued investment appetite for the metal.
Silver was 1.7 percent lower at $16.94 an ounce, while platinum was down 1 percent at $995.30 and palladium was up 0.6 percent at $1,042.97.
After hitting record highs this month, palladium fell to its lowest since Dec. 18 at $1,013.72 on Thursday and is on track for its biggest weekly drop since early September, down 4.4 percent.
(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by David Evans and Mark Potter)