Updated from 1:19 p.m. EST

Gold prices were modestly lower Thursday as traders took a breather ahead of the government's monthly employment report, one of the key pieces of data on the state of the U.S. economy.

February-dated contracts closed down $3.60 at $626.20 an ounce on the Comex division of the Nymex. The bullion exchanged-traded funds were lower, with streetTracks Gold Shares ( GLD) and iShares Comex Gold Trust ( IAU) both down a bit less than 1%.

The dollar, which tends to move in the opposite direction to gold, was rallying against the euro as yet more pieces of economic evidence point to a soft landing scenario for the economy. Still, experts are divided, and some believe the domestic economy is slowing down more rapidly.

The Institute for Supply Management's nonmanufacturing index fell to 57.1 for December from 58.9 in November. The report marginally beat consensus estimates of 57. New data on unemployment claims and factory orders were worse than expected but still relatively healthy.

It "suggests that weakness in housing and autos has not spilled over in any significant way into other areas of the economy," writes Randy Diamond, an analyst at Miller Tabak, in a market brief. "Further clues on just how much spillover has occurred will be available in tomorrow's release of the November payroll report."

Foreign exchange traders reacted by bidding up the greenback against Europe's common currency. One euro would buy $1.3088, down from $1.3161 late Wednesday. Elsewhere, the dollar was buying 119.2 yen, down slightly from 119.39 yen previously.

Longer term, some dollar watchers see the U.S. currency resuming its decline. Adam York, an economic analyst at Wachovia in Charlotte, says the bank is forecasting an end-of-year euro exchange rate of $1.38. Such a scenario would likely benefit gold bulls.

Back in the gold patch, the Market Vectors Gold Miners ETF ( GDX) was off 2.2%%. Gold Fields ( GFI) was off 4%, and Kinross Gold ( KGC) was lower by 4.6% in recent action.

Turning to base metals, copper continued Wednesday's slide with more fund selling and long liquidation. March-dated contracts declined 4.7 cents to close at $2.602 a pound on the Comex, as traders remained nervous after the prior session's plunge.

"Personally, I think the copper market is ripe for a short-covering rally," says William Adams, a metals analyst at BaseMetals.com. He sees evidence of consumers using the price dip to lock in forward contract prices, which should help provide some comfort to those with long positions.

Adams spies technical support at around $2.54 a pound and also foresees increased volatility for a while.

Shares of producer Southern Copper ( PCU) shed 1.1%, but others fared better. Freeport-McMoRan Copper & Gold ( FCX), tacked on 0.9%, while Phelps Dodge ( PD) was down only a whisker.

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