Updates for US morning session

By Noel John

July 17 (Reuters) - Gold held steady on Friday, but was on track for its biggest weekly loss in six as escalating U.S.-Iran tensions drove energy prices higher, fuelling inflation fears and reinforcing expectations of U.S. interest rate hikes.

Spot gold XAU= was unchanged at $3,970.35 per ounce by 0932 a.m. EDT (1332 GMT), holding near its lowest level since July 1. Prices are down more than 3% so far for the week. U.S. gold futures GCcv1 for August delivery fell 0.5% to $3,973.10.

The U.S. dollar rose for a second straight session, making bullion more expensive for overseas buyers. USD/

"The main drivers of the selloff in gold have been a stronger U.S. dollar and higher global inflation fears, which have sent global interest rates higher," said Chris Gaffney, president of world markets at EverBank. US/

The U.S. escalated its renewed bombing campaign on Iran, hitting bridges and an airport. Tehran responded with strikes on U.S. bases across the Middle East.

Brent crude oil prices were up more than 14% for the week following the attacks. O/R

Bullion has fallen about 25% since the U.S.-backed war with Iran began in late February, pressured by expectations that war-driven inflation could keep interest rates higher for longer.

While gold is seen as a hedge against inflation, higher rates typically weigh on the non-yielding metal.

"Recent data have decreased the probability of a rate hike at the next FOMC meeting, but global interest rates continue to climb and the recent increase in oil prices could drive the Federal Reserve to take a more hawkish stance on U.S. interest rate policy," Gaffney said.

Traders are now pricing in about a 53.3% chance of a U.S. interest rate hike in September, according to the CME FedWatch Tool. FEDWATCH/

On Thursday, Fed Vice Chair Philip Jefferson suggested he would be open to raising rates if there was no near-term improvement in inflation.

However, "gold's share in private portfolios remains low, and recent geopolitical developments, including Iran and broader tensions, may accelerate diversification beyond central banks to private investors," Goldman Sachs said in a note.

Among other metals, spot silver XAG= fell 0.8% to $55.05, platinum XPT= dropped 3.3% to $1,563.49, and palladium XPD= slipped 1.5% to $1,230.42. All three metals were headed for weekly losses.