PRECIOUS-Gold edges up as dollar weakens, oil falls ahead of inflation data

* Oil falls after Iran, Israel halt strikes on each other

* US May CPI data due on Wednesday

* Traders see about 70% chance of US rate hike in December (Recasts for US market open)

By Anushree Mukherjee

June 9 (Reuters) - Gold edged higher on Tuesday, rebounding from a more than two-month low in the previous session, as a weaker dollar and falling oil prices lent support while investors evaluated Middle East peace prospects ahead of key inflation data.

Spot gold edged 0.2% higher at $4,338.69 per ounce, as of 9:05 a.m. ET (1305 GMT). It fell to its lowest level since March 23 in the previous session.

U.S. gold futures for August delivery were steady at $4,363.90.

The dollar weakened 0.3% against its peers, making greenback-priced bullion more affordable for holders of other currencies.

"We've seen some weakness in oil prices... while gold has pulled back recently, the uptick appears to be largely driven by short-covering," said Fawad Razaqzada, market analyst at Forex.com.

Developments in the Middle East point to a possible peace deal, which pushed oil prices lower after Iran and Israel said they had halted attacks on each other following an appeal from U.S. President Donald Trump.

Lower oil prices could ease inflation fears, making room for interest-rate cuts by central banks and boosting the appeal of non-yielding gold.

After last week's strong job numbers, focus has shifted to key inflation data this week, including the May U.S. Consumer Price Index print on Wednesday and Producer Price Index reading on Thursday, for more clues on the U.S. monetary policy outlook.

"Should the U.S. inflation data for May also surprise on the upside on Wednesday, the gold price is likely to fall further. This also increases the potential for a recovery later in the year, should, as we expect, the Fed not raise interest rates," Commerzbank said in a note.

Traders are pricing in about 70% chance of a Fed rate hike in December, according to the CME FedWatch tool.

Spot silver rose 0.7% to $68.61 per ounce, platinum gained 1.4% to $1,778.98, and palladium rose 3.8% to $1,251.05. (Reporting by Anushree Mukherjee in Bengaluru; Editing by Shilpi Majumdar)