PRECIOUS-Gold rises as dollar and oil soften; investors focused on Middle East

* Gold rises some 0.6%

* Iranian ambassador says Pakistan mediation efforts at critical stage

* China's central bank adds gold to reserves for 17th month (Updates with EMEA session open)

By Ishaan Arora

April 7 (Reuters) - Gold prices gained on Tuesday, as the dollar softened and oil prices fell, while investors remained focused on any signs of progress to bring an end to the U.S.-Israeli war on Iran.

Spot gold was up 0.6% at $4,674.19 per ounce by 1017 GMT, after rising 1% earlier in the session, while U.S. gold futures for June delivery rose 0.3% to $4,700.40.

The U.S. dollar edged 0.2% lower, making greenback-priced gold slightly cheaper for holders of other currencies.

"Gold is seeing support from the ongoing geopolitical and economic uncertainty caused by the war, but the upside remains capped by the strong dollar and also by rising bond yields, which penalize gold, which as you know is a non-yielding asset," said ActivTrades analyst Ricardo Evangelista.

"Gold bulls will sit on the sidelines until there is substantial progress in this situation and there is a realistic prospect of a de-escalation," he added.

The Iranian ambassador to Pakistan said "positive and productive endeavours" by Islamabad to mediate an end to the war were "approaching a critical, sensitive stage."

The statement emerged even as Iran and Israel traded attacks as Tehran refused to reopen the Strait of Hormuz and accept a ceasefire deal on the eve of a deadline set by U.S. President Donald Trump to agree to his demands or get "taken out."

Oil prices dipped but remained above $108 a barrel.

Gold prices have fallen 12% since the war began, as elevated oil prices spur global inflation concerns. While gold typically benefits as an inflation-hedge, higher interest rates reduce its appeal as a non-yielding asset.

Investors widely see no chance of a U.S. rate cut this year, according to the CME's FedWatch tool.

Meanwhile, UBS lowered its June-end gold forecast to $5,200 per ounce as the current macroeconomic backdrop marks a shift away from the earlier disinflation narrative, presenting near-term challenges for bullion.

Elsewhere, China's central bank stayed the course on gold purchases for a 17th consecutive month, with its reserves amounting to 74.38 million fine troy ounces by the end of March, versus the previous month's 74.22 million.

Spot silver added 0.1% to $72.69 per ounce, platinum shed 0.4% to $1,971.19 and palladium was steady at $1,485.48.

(Reporting by Ishaan Arora in Bengaluru; Editing by Susan Fenton)