* US, Iran trade blows

* US May consumer price index data due at 1230 GMT

* Gold falls to its lowest since March 23

* Traders see 70% chance of US rate hike in December

(Updates for Europe mid-session trading)

By Noel John

June 10 (Reuters) - Gold slid to a more than two-month low

on Wednesday as fresh fighting in the Middle East dimmed hopes

of a resolution to the U.S.-Israeli war with Iran, heightening

concerns about inflation and interest rate hikes.

Spot gold was down 2.7% at $4,148.86 per ounce by

1159 GMT, its lowest level since March 23. U.S. gold futures

for August delivery shed 2.7% to $4,169.90.

"Gold remains a victim of growing inflation risks despite

geopolitical tensions fuelling risk aversion. Renewed U.S.-Iran

hostilities have essentially sabotaged efforts to end the war,"

said Lukman Otunuga, senior research analyst at FXTM.

Iran's Revolutionary Guards said they had carried out

missile and drone attacks on U.S. military bases in Jordan,

Kuwait and Bahrain in retaliation for American strikes on

Iranian targets around the Strait of Hormuz.

The clashes mark one of the biggest exchanges in hostilities

since the two countries agreed to a ceasefire in April.

Bullion has fallen more than 20% since the U.S.-backed war

with Iran began in late February. The conflict has led to a

surge in oil prices, stoking fears of inflation and higher

interest rates.

While gold is seen as a hedge against inflation, higher

rates typically weigh on the non-yielding metal.

Traders are currently pricing in a 70% chance of a U.S.

interest rate hike in December, according to the CME FedWatch

tool.

Investors await May consumer price index data later in the

day and the producer price index reading on Thursday to gauge

the Federal Reserve's monetary policy stance, after a strong

jobs report last week raised rate hike bets.

"The incoming CPI report may heavily influence expectations

around what actions the Fed takes in the second half of 2026,"

Otunuga said.

On the technical front, he said, gold's decline below the

200-day moving average is a bearish signal that may trigger

additional selling pressure, aided by fundamentals.

Spot silver fell 2.4% to $63.8 per ounce, platinum

dropped 3.9% to $1,659.18, and palladium added

0.4% to $1,227.25.