Gold demand improved in India this week due to a key festival, but early reports suggested purchases in the major hub were slightly lower compared with last year as higher prices put off some customers.

India was celebrating Dhanteras on Friday, the first day of the Diwali festival, when buying gold is considered auspicious.

But the slight pick up in demand allowed dealers to trim discounts to about $4 an ounce over official domestic prices — inclusive of 15% import and 3% sales levies — versus last week's $9 discounts.

"Demand, particularly for coins and bars, has shown improvement. Many customers had pre-booked gold during a period of lower prices, and they're simply receiving deliveries today," said Prithviraj Kothari, president of the India Bullion and Jewellers Association Ltd (IBJA).

Local gold prices were around 60,000 rupees ($720.66) per 10 grams on Friday after rising to 61,539 rupees ($739.15) last week.

The timely price correction is luring buyers, but demand is slightly lower as prices have still surged almost 20% from a year ago, said a Mumbai-based bullion dealer with a private bank.

"Another drop of 500 to 1,000 rupees could potentially boost demand even further."

Dealers in top bullion buyer China charged premiums of $40-$50.1 per ounce over global spot prices, up from last week's $25-$40.

"The PBOC (People's Bank of China) hasn't issued new import licenses yet, hence the pickup in premiums. But I don't see premiums roaring back to pre-Golden week levels," said Hugo Pascal, precious metals trader at InProved.

As of end-October, China held 71.20 million fine troy ounces of gold, up from 70.46 million at end-September.

In Japan, gold changed hands at anywhere between $0.5 discounts and $1 premiums.

Bullion was sold at $1.5-$2.5 per ounce premiums in Hong Kong, and $1.25-$2.25 in Singapore.

($1 = 83.27 Indian rupees)

(Reporting by Rajendra Jadhav in Mumbai, Anushree Mukherjee and Anjana Anil in Bengaluru; Editing by Maju Samuel)