Gold rose to a 1-1/2 week high on Friday, benefiting from caution about the euro zone debt crisis and ahead of the key U.S. non-farm payrolls data which is likely to underscore the frail state of the world's largest economy.

Growing worries about Greece's ability to meet its deficit targets fueled a pullback in risky assets, with European stock markets falling sharply, prompting investors to seek refuge in safe haven assets such as gold.

In the latest twist in Greece's debt saga, talks between Athens and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, a day after Greece said it would miss its budget deficit targets this year.

Spot gold rose 1.5 percent to $1,851.14 an ounce at 5:54 a.m. EDT, from $1,824.55 late in New York on Thursday. It earlier rose to a high of $1,855.30, its highest level since hitting a record high above $1,910 on August 23.

We're seeing a new round of flight into so-called safe haven assets. The debt problems in the euro zone are still a worry and it offers an opportunity for market speculators to buy gold, said Peter Fertig, a consultant at Quantitative Commodity Research.

The metal rose 12 percent in August, its strongest monthly gain since November 2009 as a run of soft economic data fueled speculation the Federal Reserve would print more money to shore up the flagging U.S. economy.

U.S. non farm payrolls data, due at 8:30 a.m. EDT, is expected to show an increase of 75,000 jobs in August, a slowdown from a rise of 117,000 in July, keeping pressure on the Fed to embark on further quantitative easing.

Any surprises in the non farm payrolls numbers could cause strong movements in gold prices in the short-term, particularly as U.S. markets will be closed on Monday for the Labor Day holiday.

There is always a possibility of a strong surprise in the non farm payrolls numbers and we could see gold advancing further if the numbers come in lower. A weak number would also increase speculation of further quantitative easing by the U.S. Federal Reserve, Fertig said

U.S. gold rose 1.4 percent to $1,855.50 an ounce.

CONSOLIDATION EYED

Investors will keep an eye on inflation figures from China next week to gauge the progress of Beijing's battle against rapidly rising prices,

Inflation in China ran at 6.5 percent in July, far exceeding the government's full-year target of 4 percent.

Some analysts expect further short-term consolidation in gold following the precious metal's strong run in early August. Gold, which is up nearly 30 percent this year, has risen 1.3 percent so far this week following a sharp correction in the previous week.

Some consolidation here is healthy for gold as we simply need more clarity on the macro side to determine if riskier bets are on or off this autumn, VTB Capital said in a note.

Otherwise, in the longer run bullion is still well supported as investors are afraid to liquidate their longs amid ongoing policy uncertainty in both the U.S. and the eurozone.

Spot silver tracked gold to rise 1.7 percent to $42.15, following a 3.2 percent fall in the previous week.

Bolivia, the world's sixth-largest silver producing country by output in 2010, plans to raise mining royalties to take advantage of high prices and bolster the state's role in the industry.

Elsewhere, spot platinum rose 0.6 percent to $1,854.25 an ounce, while spot palladium rose 0.4 percent to $782.22 an ounce.

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