LONDON: Precious metal gold sank to a two-month low on Friday, as US payrolls data stoked hopes of a Federal Reserve interest rate hike, dealers said.

The price of gold slid to $1,260.64 per ounce in afternoon London deals.

"Gold was pressured this week by increasing prospects of higher US interest rates," said ForexTime analyst Lukman Otunuga.

US payrolls contracted in September for the first time in seven years as major hurricanes left workers idled in southern states but unemployment continued to fall, official data showed Friday.

Total non-farm employment fell by 33,000 net positions for the month, with a steep drop-off in hiring at restaurants and bars, according to the labor department.

But the unemployment rate fell another two tenths to 4.2%, its lowest level since February of 2001.

Average hourly earnings, a closely watched measure of wages which can point to looming inflation, popped by a surprising 0.5% to $26.55.

"The further decline in US unemployment and the impressive spike in average earnings have pushed up the prospect of the rate hike from the Fed in December," added CMC Markets analyst David Madden.

"The metal has lost ground over the past four weeks, and that trend could stay in place as dealers will be looking toward the US central bank meeting at the end of the year."