PRECIOUS-Gold falls nearly 2% after report of US sending more troops to Middle East

(Rewrites top half to reflect Middle East development, updates prices, adds fresh comments)

* US dollar and Treasury yields extend gains

* Silver, platinum and palladium head for weekly fall

By Ashitha Shivaprasad

March 20 (Reuters) - Gold prices fell nearly 2% on Friday as the dollar strengthened after reports that the U.S. will deploy thousands of additional troops in the Middle East, further fanning concerns of higher oil prices, inflation, and with it, elevated interest rates. Spot gold fell 1.8% to $4,566.26 per ounce as of 11:03 a.m. ET (1503 GMT) after rising 1% earlier in the session. U.S. gold futures for April delivery lost 0.8% to $4,570.20. The U.S. military is deploying thousands of additional Marines and Sailors to the Middle East, three U.S. officials told Reuters.

Following this report, the U.S. dollar and U.S. Treasury yields extended gains. A stronger dollar makes greenback priced-bullion less attractive to other currency holders. The war against Iran has killed thousands, spilled across the Middle East, and hit the global economy, since the U.S. and Israel launched their joint attack on February 28. Iran's prolonged blockade of the Strait of Hormuz could keep energy prices elevated and fuel inflation.

"Gold and silver are being dragged lower as markets climb the usual wall of worry ahead of the weekend. The last two Fridays have seen rallies in crude, which triggered a surge in U.S. dollar and selloffs in equities, bonds and metals, which have been trading with other assets since the war began," said Tai Wong, an independent metals trader.

"Metals are especially wobbly after this week's aggressive drawdown on rate hike fears. It should consolidate soon but it will be a bumpy ride."

Gold is considered a hedge against inflation and uncertainty, but higher interest rates curb the non-yielding asset's appeal. Major global brokerages see a higher likelihood of the European Central Bank and Bank of England raising interest rates, potentially as early as April. The Federal Reserve held interest rates steady on Wednesday and projected higher inflation, while Chair Jerome Powell said future policy path was subject to unusually high uncertainty due to the war. Spot silver fell 4.6% to $69.52. Platinum dropped 1.3% at $1,945.55 and palladium slipped 2.4% to $1,412.74. All three metals were on track for weekly declines. (Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Leroy Leo)