* Gold below 1-month high, set for 1.7 pct gain on week
* Dollar index sets 8-1/2-month low
* Investment, physical demand lackluster (Updates prices, adds quotes, detail throughout, NEW YORK dateline, byline)
By Marina Lopes and Clara Denina
NEW YORK/LONDON, Oct 25 (Reuters) - Gold inched up slightly on Friday as disappointing U.S. economic data reinforced expectations that the U.S. Federal Reserve will keep its stimulus intact well into 2014.
Spot gold was up $4.62, or 0.34 percent, at $1,351.16 an ounce by 2:38 p.m. EDT (1838 GMT), hovering below its highest level since Sept. 20 of $1,351.61.
Bullion was headed for a 1.7 percent gain on the week, having hit four-week highs on Thursday as it benefited from weaker-than-expected U.S. non-farm payrolls data earlier in the week.
The jobs data bolstered expectations the Fed will not start to rein its stimulus program until well into next year.
U.S. gold futures for December delivery closed up $2.20, or 0.2 percent, at $1,352.40.
"Things are sluggishly moving here," said Thomas Capalbo, a precious metals broker at New York futures brokerage Newedge, following weaker-than-expected consumer confidence and durable goods data on Friday morning.
"There's no real indication that things are getting much better, and no indication saying that we are going to see tapering soon, so that's going to be beneficial for gold and probably silver too."
Bullion eked out gains even as the dollar recovered from a nearly nine-month low against a basket of currencies.
U.S. Treasury yields were near three-month lows.
After 12 years of gains, gold has fallen nearly 20 percent this year on concerns the Fed would begin cutting back its easy-money policy by trimming its $85 billion monthly bond purchases, which have fueled gold's appeal as a hedge against inflation.
The metal, however, has rallied about 8 percent in less than two weeks as disappointing U.S. economic data and lingering budget uncertainties in Washington increased gold's safe-haven appeal.
"The recent trend in gold and its volatile reaction to the most recent economic release show the market is still heavily data-dependent for price direction," HSBC said in a note.
As a gauge of investor sentiment, holdings in the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Shares, fell 0.2 percent or 1.8 tonnes on Thursday. An outflow of more than 10 tonnes occurred on Monday followed by an increase of six tonnes on Tuesday.
The gain in spot prices has further deterred physical demand in most Asian countries.
Premiums on the Shanghai Gold Exchange fell to multi-month lows of $2 an ounce on Friday. That compares with highs of $30 in April-May.
However, in India, premiums were at a record high of $120 an ounce as dealers struggled to meet demand amid tight supplies.
"The sense is that premiums are elevated and are expected to rise further ... and the expectation is that they (stocks) are likely to run out completely around November," UBS said.
In other precious metals, silver fell $0.15, or 0.66 percent, to $22.54 an ounce, having hit a one-month high of $22.85 in the previous session.
Spot platinum was up $7.90, or 0.55 percent, at $1,453.24 an ounce, supported by news of a potential South African workers' strike at the world's second-largest producer, Impala Platinum, after wage talks failed.
Spot palladium fell $5.28, or 0.71 percent, to $739.72 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by Susan Fenton, Pravin Char, Marguerita Choy and Steve Orlofsky)