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

* Iran's huge Gulf gas field struck in major escalation

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

* US producer prices surge in February (Updates prices)

By Ashitha Shivaprasad

March 18 (Reuters) - Spot gold fell to a more than one-month low on Wednesday, pressured by a stronger dollar and a jump in oil prices that stoked inflation fears and reinforced bets that the U.S. Federal Reserve will not cut interest rates soon.

Spot gold fell 2.6% to $4,874.19 per ounce by 11:14 a.m. ET (1514 GMT), after hitting its lowest level since February 6 earlier in the session. U.S. gold futures for April delivery dropped 2.6% to $4,878.20.

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

MIDDLE EAST WAR 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 said.

Gold is a traditional safe haven in times of uncertainty but 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 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.

Iran's huge Pars gas field was hit on Wednesday, in the first reported strikes on Iranian energy infrastructure in the Gulf during the war, a major escalation which prompted Tehran to warn its neighbours that their energy installations would be targeted "in the coming hours".

In other metals, spot silver fell 3% to $76.90, platinum was down 3.2% at $2,056.05, and palladium lost 4.5% to $1,528.75. (Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Barbara Lewis and Pooja Desai)