PRECIOUS-Gold falls to over one-month low on higher-for-longer rate outlook

(Updates for US morning hours)

* Israel strikes central Beirut as war expands

* Fed likely to hold rates steady as Iran war shocks policy debate

* US producer prices surge in February

By Ashitha Shivaprasad

March 18 (Reuters) - Spot gold fell over 3% to a more than one-month low on Wednesday, dragged down by a firmer dollar and a jump in oil prices that stoked inflation fears, reinforcing bets that the U.S. central bank will keep policy restrictive. Spot gold fell 3.2% to $4,844.20 per ounce by 9:17 a.m. ET (1317 GMT), after hitting its lowest level since February 6 earlier in the session. U.S. gold futures for April delivery dropped 3.2% to $4,845.50.

The U.S. dollar inched higher, making gold less affordable for holders of other currencies.

WAR IS STOKING INFLATION

"Higher energy prices due to the continued escalation of the war are fanning the fire of inflation - one reason the Federal Reserve may be unable to cut rates, and that is keeping gold prices under pressure," said David Meger, director of metals trading at High Ridge Futures.

"I don't think there is a lack of safe-haven demand. I just believe that other pressures are overwhelming that demand," he added.

Gold is a traditional safe haven in times of uncertainty, but it tends to underperform when rates are high, as it yields no interest. The Fed is expected to hold interest rates steady at the conclusion of its meeting later in the day, but also to outline its view on how President Donald Trump's decision to launch an open-ended conflict in the Middle East has recast the outlook for the U.S. economy, inflation and monetary policy. Meanwhile, a Labor Department report showed that U.S. producer prices increased more than expected in February, and could accelerate further due to the war. Nearly three weeks into the Iran conflict, there is little sign of de-escalation, keeping benchmark Brent futures above $100 a barrel, which in turn threatens to feed into higher inflation as elevated energy costs ripple through the broader economy.

Israeli warplanes hit central Beirut in the early hours of Wednesday, destroying apartment buildings in some of the most intense airstrikes on the centre of the Lebanese capital for decades.

Among other metals, spot silver fell 4.2% to $75.93 per ounce, platinum was down 4.5% at $2,028.12, and palladium lost 4.7% to $1,526.20. (Reporting by Ashitha Shivaprasad in Bengaluru; editing by Barbara Lewis)