Spot gold staged a strong rally on Friday, snapping four sessions of losses with possibly its biggest one-day gain this month, as a smooth Spanish bond auction and upbeat US jobs data supported sentiment.

Gold, however, was headed for a weekly decline of nearly 7 percent, its biggest since late September, as funds rushed to liquidate positions with just two weeks left on this year's calendar.

'People prefer to hold cash in hand at the year end,' said Dick Poon, manager of precious metals at Heraeus in Hong Kong. 

Investors are also concerned that euro zone's problem will drag well into 2012, which may further boost the dollar and depress dollar-denominated commodities, he added.

Solid demand for Spain's bond auction on Thursday and data showing US jobless claims at a 3-1/2-year low gave a reprieve to equities, industrial and precious metals, which have suffered heavy losses this week.

Spot gold rallied as much as 1.6 percent to $1,595.3 and traded at $1,593.39 by 0726 GMT, off a 2-1/2-month low of $1,560.36 hit in the previous session. US gold rose 1.2 percent to $1,596.3.-Reuters