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July 23 (Reuters) - Gold fell more than 2 percent on Thursday, retreating from a two-week high hit in the previous session, amid escalating tensions in the Middle East that pushed oil prices higher , fueled inflation fears, and reinforced expectations of a U.S. interest rate hike this year.

By 1314 GMT, spot gold had fallen 2.1 percent to $ 4,041.59 an ounce, after rising to $4,165.87 in the previous session, its highest level since July 7.

U.S. gold futures for August delivery fell 2.6 percent to $ 4,043.50 .

The dollar rose 0.3 percent, making dollar-denominated gold more expensive for holders of other currencies. Yields on the benchmark 10-year U.S. Treasury note also climbed more than 1 percent to their highest level in over a year.

Jim Wyckoff, a market analyst at American Gold Exchange, said, "Rising crude oil prices are pushing up bond yields because of expectations that central banks will be unable to cut interest rates due to inflation problems. Higher bond yields are the enemy of those betting on rising gold and silver, which are non-yielding assets."

Oil prices touched $100 a barrel for the first time since late May after the Houthis in Yemen announced they had targeted two Saudi oil tankers, raising fears that disruptions to global oil supplies could extend beyond the Strait of Hormuz.

High oil prices are putting pressure on gold, as they have reinforced expectations that interest rates will remain high for longer, which usually reduces the appeal of the non-yielding yellow metal.

Investors are now awaiting next week's meeting of the Federal Reserve (the US central bank) and its decision on interest rates, as well as statements from its chairman, Kevin Warsh.

According to the CME FedWatch tool, traders now see an 80 percent probability of an interest rate hike in September, up from 68 percent on Wednesday.

As for other precious metals, silver fell 4.3 percent to $ 57.15 an ounce in spot trading, platinum dropped 3.1 percent to $ 1,593.17 and palladium declined 2.8 percent to $1,255.