Gold climbs as rate hike bets ebb after weaker US data

June 1 (Reuters) – Gold hit a more than one-week peak on Thursday, as the dollar tumbled after weaker US economic data on expectations of the Federal Reserve skipping an interest rate hike at its June policy meeting.

Spot gold was up 0.7% at USD 1,976.81 per ounce by 1:45 p.m. EDT (1745 GMT), after rising 1.1% to its highest since May 24. US gold futures settled 0.7% higher at USD 1,995.50.

US manufacturing contracted for a seventh straight month in May as new orders continued to plummet, while the number of new US jobless claims increased modestly last week.

The dollar slipped, making bullion cheaper for holders of other currencies, while 10-year Treasury yields hit a two-week low.

“The Fed wouldn’t want to put in this much work and then just basically talk rates back down from where they are. I think they want to keep them elevated,” said Daniel Pavilonis, senior market strategist, RJO Futures.

Philadelphia Fed chief Patrick Harker said barring any surprise in the economic data, he preferred holding rates steady in June. Other Fed officials, including the vice chair-designate, also pointed towards a rate hike “skip”.

Markets saw a 75% chance of rates remaining unchanged in June.

Gold, which does not yield any interest of its own, loses appeal when interest rates rise.

“There’s some kind of safe-haven demand supporting gold because of uncertainty regarding the debt ceiling bill,” said Commerzbank analyst Carsten Fritsch.

The US Senate will stay in session until it passes the bill, Democratic Majority Leader Chuck Schumer said, with just four days left to pass the measure and avert a catastrophic default.

Spot silver rose 1.7% to a two-week high at USD 23.88 per ounce, while palladium was 2% higher at USD 1,389.78.

Platinum gained 1.2% to USD 1,004.93, after hitting a seven-week low.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; Editing by Susan Fenton, Rashmi Aich and Shilpi Majumdar)