(Updates prices)
* US services sector barely grew in May, new orders slowed
* Dollar, Treasury yields slip after data
* Markets see 78% chance of Fed skipping rate hike in June
June 5 (Reuters) - Gold rebounded on Monday after weaker U.S. services sector growth reinforced bets for the Federal Reserve to stand pat on interest rates next week.
Spot gold gained 0.6% to $1,958.89 per ounce by 1:40 p.m. EDT (1740 GMT), erasing losses from earlier in the session, when it touched its lowest since May 30.
U.S. gold futures settled up 0.2% at $1,974.30.
The U.S. services sector barely grew in May as new orders slowed, with the Institute for Supply Management's non-manufacturing index falling to 50.3 last month from 51.9 in April and missing expectations for an uptick to 52.2.
"The market is really taking it in as a reason to pencil out some rate hikes here ... It's certainly something that the Fed is pleased to see with respect to its fight against inflation," said Daniel Ghali, commodity strategist at TD Securities.
The index is seen by some economists as an indicator of the Fed's favored inflation gauge, as services prices tend to be stickier and less responsive to rate hikes.
The dollar index slipped after the data, making greenback-priced bullion more affordable for overseas buyers, while 10-year Treasury yields retreated.
Traders pegged the chances of the Fed pausing its interest rate hikes at its June 13-14 meeting at 78%, according to the CME FedWatch Tool.
Non-interest-bearing bullion becomes less attractive for investors in a high-interest rate environment.
However, "gold may be looking overpriced despite a recent decline owing to sticky inflation and the likelihood that the Fed will not meaningfully cut interest rates in 2023," Heraeus Precious Metals said in a note.
Gold dropped over 1% on Friday after data showed the U.S. economy added 339,000 jobs last month, above estimates of 190,000.
Silver dipped 0.2% to $23.54, platinum rose 2.6% to $1,029.92, while palladium fell 0.4% to $1,414.21.
(Reporting by Deep Vakil in Bengaluru; editing by David Evans, Marguerita Choy and Shilpi Majumdar)
