Updates for US morning hours

By Sukanya Mitra and Ashitha Shivaprasad

July 2 (Reuters) - Gold extended its gains, climbing more than 2% on Thursday, after weaker-than-expected U.S. non-farm payrolls data reduced expectations of Federal Reserve interest rate hikes this year.

Spot gold XAU= was up 2.4% at $4,126.97 per ounce, as of 9:00 a.m. EDT (1300 GMT).

U.S. gold futures GCcv1 inched 1.4% higher to $4,139.20.

The U.S. dollar index .DXY was down 0.7%, making dollar-priced metals cheaper for holders of other currencies.

"The lower-than-expected jobs number portends to less likelihood of potential rate hikes later this year. As we know, gold has a tendency to perform better in lower interest rate environments," said David Meger, director of metals trading at High Ridge Futures.

"Hence, we saw a significant rally in the gold market on the back of that," he added.

A Labor Department report showed the U.S. economy added 57,000 jobs last month, compared with economists' estimates for a rise of 110,000. The unemployment rate stood at 4.2%.

That followed a report on Wednesday showing that U.S. private payrolls increased less than expected in June.

Traders now see a nearly 51% chance of a rate hike by September, down from 66% before the data, according to the CME FedWatch tool.

On Wednesday, Fed Chairman Kevin Warsh said that inflation expectations and inflation risks have come down in recent weeks, even as he repeated that the Fed is committed to bringing inflation down to its 2% goal.

Meanwhile, the World Gold Council said that central banks were back in buying mode in May and, based on the latest reported data, official gold reserves increased by a net 41 tons during the month.

On the Middle East front, Iran and the United States concluded a round of indirect talks on Wednesday with no sign that they had made headway toward lasting peace.

Among other metals, spot silver XAG= rose 4% to $61.53 per ounce, platinum XPT= gained 2.3% to $1,613.35, and palladium XPD= added 3.8% to $1,256.50.