PRECIOUS-Gold rises over 1% as US-Iran peace deal optimism eases rate hike bets

* Markets see 58% chance of rate hike in December

* Brent crude futures drops below $80 a barrel

* Market awaits Fed rate decision on Wednesday (Recasts for US market open)

By Anjana Anil

June 16 (Reuters) - Gold prices rose more than 1% on Tuesday as expectations of an interest rate hike from the U.S. Federal Reserve this year eased, following an interim U.S.-Iran peace deal that sent oil prices and inflation fears lower.

Spot gold was up 0.9% at $4,343.51 per ounce as of 9:10 a.m. ET (1310 GMT). Prices touched their highest level since June 5 in the previous session.

U.S. gold futures delivery added 0.2% to $4,358.90.

The interim deal announced by U.S. President Donald Trump would extend a tenuous ceasefire agreed upon in April by another 60 days and reopen the Strait of Hormuz, which Iran has effectively blocked since the U.S. and Israel attacked Iran in February.

"Supporting the market over the last two sessions has been the prospects of an agreement between the U.S. and Iran in regards to ending the war," said David Meger, director of metals trading at High Ridge Futures.

"What we've seen as a result of that has been short-term interest rates drop, energy prices come down, and less likelihood that the Fed will need to raise interest rates later this year."

Brent crude futures have dropped below $80 a barrel for the first time since early March, after sinking nearly 5% on Monday after the announcement of the interim deal.

Markets have pared back expectations for a Fed rate hike in December to 58% from around 70% earlier, according to the CME FedWatch tool.

Bullion has been under pressure since the onset of the U.S.-Israeli war against Iran, as rising oil prices fuel expectations of prolonged high interest rates. Despite being an inflation hedge, non-yielding gold suffers in a high interest rate environment.

Market participants are now awaiting a series of central bank meetings this week, including the Fed's rate decision on Wednesday, the first under new Chair Kevin Warsh.

Spot silver rose 0.7% to $70.51 per ounce. Platinum gained 2.7% to $1,812.76, and palladium climbed 0.9% to $1,360.75. (Reporting by Anjana Anil in Bengaluru; Editing by Shailesh Kuber)