(Updates prices, adds graphic)

By Jan Harvey

LONDON, Sept 3 (Reuters) - Gold steadied on Friday as datashowing the U.S. non-manufacturing sector grew in August at aslower pace than July helped offset a stronger-than-expectedU.S. non-farm payrolls reading to lift the metal's haven appeal.

Silver climbed, meanwhile, to hit its highest since March2008 as investment appetite for the precious metals improved.

Spot gold was bid at $1,249.80 an ounce at 1542 GMT, off alow of $1,235.70 an ounce, against $1,250.74 late in New York onThursday. U.S. gold futures for December delivery fell $2.80 to$1,250.50.

An industry report released on Friday showed the U.S.non-manufacturing sector grew in August for an eighth straightmonth but at a slower pace than July and at a rate that wasbelow expectations.

This helped counteract the positive impact on risk appetiteof an earlier release showing that while U.S. employment fellfor a third straight month in August, the decline was far lessthan expected.

"Non-farm payrolls data has come out much better thanexpected -- the consensus was for job losses of about 100,000,it has come out at 54,000," said Societe General analyst DavidWilson. "Gold is losing a bit of momentum."

However, recent U.S. data has tended to still point towardsa relatively soft recovery, he said. "There is still an overallsense of caution, which should still be supportive for gold."

Gold has benefited in recent weeks from concerns that weakgrowth would push the Fed into further quantitative easingmeasures, which could ultimately prove inflationary.

The dollar fell versus the euro in the wake of the data,though it climbed versus the Japanese yen, as the numbersboosted appetite for higher-yielding currencies.

Stock markets rose to a fresh three-week high in Europeafter the jobs report surprised on the upside, though they laterpared gains after U.S. ISM data. U.S. stock markets were alsohigher.

Among other commodities, U.S. crude futures fell 1.8percent, while base metals like copper and aluminium paredgains.

ETF HOLDINGS FALLS

Recent strength in gold prices notwithstanding, physicaldemand for the precious metal was muted.

The world's largest gold-backed exchange-traded fund, NewYork's SPDR Gold Trust, reversed the inflows it reported overthe last week, with its holdings falling more than 9 tonnes to1,294.908 tonnes on Thursday.

Meanwhile, Indian gold buying was muted for a second day onFriday as traders were cautious about placing fresh orders afterprices traded near a record high, dealers said.

Surging prices have weighed heavily on the price-sensitiveIndian market in recent years. However, market watchers havenoted some tentative signs of recovery in demand as buyersbecome acclimatised to higher prices.

"Indian festival seasonal demand looks set to be healthy,"said bullion dealer Goldcore in a note.

Among other precious metals, silver was bid at $19.85 anounce against $19.58, having earlier hit a new near 2-1/2 yearhigh at $19.92 an ounce.

Technical analysts at Barclays Capital said the metal hadre-established its uptrend after breaking through its June highat $19.47 an ounce earlier this week.

"We are bullish on silver, looking for an eventual test ofthe 2008 high of $21.35," said ScotiaMocatta in a note.

Elsewhere platinum was at $1,558.50 an ounce against$1,543.10, while palladium was at $531 versus $520.93. (Editing by Anthony Barker)