* Gold hovers near two-week low, down 3% so far this week

* Silver, platinum, palladium head for worst week in three

* Oil prices up about 12% for the week so far

(Adds comment and updates prices)

By Pablo Sinha

July 17 (Reuters) - Gold was on track for its biggest weekly

loss in six on Friday, as escalating U.S.-Iran clashes lifted

oil prices, adding to inflationary pressures and strengthening

the case for higher U.S. interest rates.

Spot gold was up 0.8% at $4,002.39 per ounce by 0624

GMT, having touched its lowest since July 1 earlier in the day.

U.S. gold futures for August delivery gained 0.4% to

$4,006.10.

The metal has lost 3% so far this week, its largest decline

since June 1, with the Middle East conflict outweighing support

from softer June U.S. inflation figures released this week.

"Gold is making tentative steps higher today after the sight

of the metal slipping below $4,000 attracted some bargain

hunting," said Tim Waterer, chief market analyst at KCM Trade.

However, "geopolitical risks in the Middle East are still

present, with inflation and yield concerns being the dominant

forces holding gold back," Waterer said.

Oil prices have climbed about 12% this week as the

escalating U.S.-Iran conflict raised supply concerns.

The surge in oil prices risks reigniting inflation worries

and increasing the likelihood of interest rate hikes.

Non-yielding gold typically struggles in a high-interest-rate

environment, as investors gravitate towards assets offering

higher returns.

Dallas Federal Reserve President Lorie Logan became the

first of Fed Chairman Kevin Warsh's new colleagues to call

publicly for a rate hike.

Fed Vice Chair Philip Jefferson also suggested he would be

open to raising rates if there is no near-term improvement in

inflation.

Traders are pricing in a 73% chance of a rate hike in

December, according to the CME FedWatch Tool.

Gold discounts in India widened to a one-month high this

week as hopes of lower prices kept buyers on the sidelines,

while premiums in China were largely steady.

Elsewhere, spot silver rose 0.6% to $55.83 per ounce,

while platinum lost 1% to $1,602.02 and palladium

eased 0.4% to $1,244.84. All three metals were headed for a

weekly loss.