PRECIOUS-Gold rises as dollar, oil ease on US-Iran deal prospects

(Updates prices as of 0542 GMT)

* U.S. blockade on Hormuz to stay until agreement with Iran: Trump

* Oil prices fall to two-week low

* Kevin Warsh sworn in as U.S. Fed Chair

By Pablo Sinha

May 25 (Reuters) - Gold prices rose more than 1% on Monday, as optimism for a breakthrough in U.S.-Iran peace negotiations weakened the dollar and eased oil prices, which softened the inflation outlook.

Spot gold was up 1.1% at $4,557.46 per ounce, as of 0542 GMT. U.S. gold futures for June delivery gained 0.8% to $4,558.80.

While U.S. President Donald Trump has warned that he was in no hurry to finalise a deal with Iran, investors seem to rely more on his Saturday statement that Washington and Iran had "largely negotiated" a memorandum of understanding on a peace deal that would reopen the Strait of Hormuz.

"Trump has been raising market hopes for some sort of deal with Iran, which could lead to the reopening of the Strait of Hormuz. That prospect has weighed on oil prices and, by extension, given gold a welcome lift from an inflation perspective," said Tim Waterer, chief market analyst at KCM Trade. The U.S. will either have a good agreement with Iran or deal with the country "another way," Secretary of State Marco Rubio said on Monday. The dollar was around its lowest levels in a week, making greenback-priced bullion more affordable for holders of other currencies.

Oil prices, which influence inflation expectations, hit two-week lows.

Elevated crude can fuel inflation and keep interest rates higher for longer. While gold is seen as an inflation hedge, higher rates tend to weigh on the non-yielding metal. Kevin Warsh was sworn in as chair of the U.S. Federal Reserve on Friday at a pivotal moment for the American economy, where surging gasoline prices linked to the Iran war fuel inflation and erode consumer sentiment. Spot silver climbed 2.9% to $77.67 per ounce, platinum rose 1.9% to $1,959.25, and palladium was up 2.5% at $1,381.46. (Reporting by Pablo Sinha in Bengaluru; Editing by Subhranshu Sahu, Sherry Jacob-Phillips and Harikrishnan Nair)