PRECIOUS-Gold slips as war uncertainty clouds interest rate outlook

(Updates for U.S. morning hours)

* US inflation data due this week

* Trump and China's Xi set for talks

* India's Modi urges pause on gold purchases

By Ashitha Shivaprasad

May 11 (Reuters) - Gold prices fell on Monday as U.S. President Donald Trump's swift rejection of Iran's response to a peace proposal stoked inflation concerns and weighed on the outlook for interest rates.

Spot gold was down 0.5% at $4,692.49 per ounce, as of 8:45 a.m. EDT (1245 GMT). U.S. gold futures lost 0.6% to $4,701.30. Days after the U.S. floated an offer in the hopes of re-opening negotiations, Iran on Sunday released a response focused on ending the war on all fronts, especially Lebanon. It also included a demand for compensation for war damage. Within hours, Trump dismissed Iran's proposal with a post on social media.

"Inflation concerns have risen after the United States rejected Iran's response, while constraints in the Strait of Hormuz are adding to these pressures and working against gold, as elevated inflation could keep interest rates higher," said Jim Wyckoff, market analyst at American Gold Exchange.

Gold tends to come under pressure despite its safe-haven appeal, as higher rates increase the opportunity cost of holding non-yielding assets.

Global brokerages have scaled back expectations of two U.S. interest rate cuts this year, with forecasts now split between some easing and no cuts at all in 2026. U.S. inflation data for April is due this week after Friday's jobs report showed that U.S. employment increased more than expected in April. Markets are also watching Trump's two-day visit to China this week, where he is set to meet Chinese President Xi Jinping to discuss Iran, Taiwan, artificial intelligence and nuclear weapons. Elsewhere, shares of Indian jewellery retailers tumbled after Prime Minister Narendra Modi urged people to refrain from buying gold for a year to protect foreign exchange reserves. India is the second-largest gold consumer.

Among other metals, spot silver was up 3.1% at $82.84 per ounce, platinum gained 0.8% to $2,071.70, and palladium was up 0.2% at $1,494.97. (Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Alexander Smith )