PRECIOUS-Gold holds losses after Fed decision, drops to over one-month low

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

* Fed calls inflation somewhat elevated

* US producer prices surge in February (Updates after US Fed decision)

By Ashitha Shivaprasad

March 18 (Reuters) - Spot gold continued to trade lower after the Federal Reserve's latest policy decision on Wednesday, having hit a more than one-month low due to a stronger dollar and expectations for interest rates to remain higher for longer amid the ongoing Middle East conflict.

Spot gold fell 2.9% to $4,860.21 per ounce by 2:58 p.m. ET (1858 GMT), after hitting its lowest level since February 6 earlier in the session. U.S. gold futures for April delivery settled 2.2% lower at $4,896.20.

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

The Fed held rates steady, as was widely expected, citing somewhat elevated inflation and giving little indication when it might next cut short-term borrowing costs. Fed officials' economic projections indicated they expect to cut rates once again this year.

Meanwhile, Federal Reserve Chair Jerome Powell said the latest round of Fed forecasts are a bit of a shot in the dark given uncertainty created by the Iran war.

"Powell signalled strongly that the Fed is on the sidelines and his gentle dovish hints were not nearly enough to cheer assets or gold, which has been trading like a risky asset. If the market was hoping for a Fed ready to "help" - they didn't get it," said Tai Wong, an independent metals trader.

"Gold's slump under $5,000/oz could be technically troubling, but still won't impact long-term bullishness."

Gold is a traditional safe haven in times of uncertainty but tends to underperform when rates are high, as it yields no interest.

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, a major escalation, prompting Tehran to announce it would respond with attacks on oil and gas targets throughout the Gulf.

In other metals, spot silver fell 4.2% to $75.99, platinum was down 3.9% at $2,041.30, and palladium lost 6.1% to $1,503.97. (Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Barbara Lewis and Pooja Desai)