* Stronger dollar caps gold's gains
* German government bonds hold near three-week highs
* Coming up: U.S. weekly jobless claims 1230 GMT (Updates throughout, previous SINGAPORE)
By Michelle Martin
LONDON, April 5 (Reuters) - Gold inched higher on Thursday after falling to a near three-month low the previous day as weaker prices tempted some buyers, but gains were capped by a stronger dollar and fading hopes for a fresh round of monetary stimulus in the United States.
Spot gold was up 0.1 percent at $1,620.59 an ounce at 0954 GMT, while U.S. gold futures for June delivery were up $8.20 an ounce at $1,622.30.
The metal has fallen nearly 3 percent this week and while prices regained some ground on Thursday, it was still hovering around its lowest since early January. Traders are awaiting key U.S. payrolls data due on Friday for fresh direction.
"You have the release of the U.S. labour report tomorrow so there is some risk over the weekend," said Peter Fertig, a consultant for Quantitative Commodity Research.
He said volumes were likely to be light, with European and U.S. markets largely closed for the Easter weekend. "For some investors (there is) risk and therefore they are closing short positions."
Appetite for gold has weakened over the past two days after minutes from the Federal Reserve on Tuesday suggested a fresh round of U.S. quantitative easing was unlikely.
Ultra-loose monetary policy, which keeps real interest rates and consequently the opportunity cost of holding gold low, helped push the metal to record highs in 2011.
"The main pressure has come from the (Fed) minutes," Fertig said. "The minutes did not show any willingness to implement (a fresh round of quantitative easing) which the market has hoped for and that of course has strengthened the U.S. dollar."
"The Spanish bond auction ... is also a factor currently supporting the U.S. dollar and weighing on the euro," he added.
Spanish borrowing costs jumped at bond auctions on Wednesday, spreading fear in European markets of a return of the euro zone debt crisis and overshadowing a successful step back into debt markets by neighbouring Portugal.
The euro hovered near a three-week trough against the dollar on Thursday and could fall further due to a deteriorating economic outlook in the euro zone. A stronger dollar tends to weigh on gold, which is priced in the U.S. currency, and it is receiving little support from safe-haven demand.
"Growing unease in the European credit markets, evidenced by a sloppy Spanish bond auction that took place on Wednesday, failed to provide any support to gold, as investors once again piled into the relative safety of the dollar and the U.S. treasury bond market," INTL FC Stone analyst Edward Meir said in a note late on Wednesday.
European shares were flat after earlier eking out modest gains, with investors looking for bargains after three weeks of losses, but sentiment remained fragile, while German government bonds held near the previous day's three-week highs.
"As long as there remains a flight into the safe havens of government bonds in the euro zone, German Bunds, or U.S. Treasuries, that is a bit of a negative factor (for gold)," Fertig said.
Euro zone businesses floundered in March and growth cooled in the service sectors of the United States and India, taking some steam out of the global economy, data showed on Wednesday.
"In addition to Euro jitters potentially offering a 'prop' for gold, we also cannot rule out the possibility of the U.S. economic recovery 'topping out', bringing the easing option back onto the table, and thus throwing another lifeline to the precious metal," INTL FC Stone analyst Meir said.
Investors will be looking on Thursday at a report from consultants Challenger, Gray and Christmas Inc about job cuts in March due at 1130 GMT and U.S. weekly jobless claims due at 1230 GMT for signs about the health of the U.S. labour market ahead of a key U.S. job market report due on Friday.
Among other precious metals, spot silver was flat at $31.34 an ounce, spot platinum was up 0.2 percent at $1,595.25 an ounce, and spot palladium up 1 percent at $635.70 an ounce. (Editing by Jan Harvey and James Jukwey)