* U.S. and Iran trade blows over the Strait of Hormuz

* Oil prices stay elevated as US-Iran truce prospects dim

* Traders have largely priced out U.S. rate cuts for this

year

(Updates prices as of 0417 GMT)

By Noel John

May 5 (Reuters) - Gold prices edged higher on Tuesday

from a five-week low hit in the previous session, although gains

were limited as elevated crude oil prices kept inflation fears

alive and clouded the U.S. interest rate outlook.

Spot gold rose 0.3% to $4,533.40 per ounce by 0417

GMT, after a more than 2% drop on Monday. U.S. gold futures

for June delivery inched 0.2% higher to $4,542.50.

"Prices seem to be digesting a bit after the return of the

'war trade' across markets sent gold lower Monday," said Ilya

Spivak, head of global macro at Tastylive.

However, gains were capped as Treasury "yields and the

dollar pushed higher as a rebound in crude oil stoked inflation

fears. That weighed against non-interest-bearing and anti-fiat

gold," Spivak said.

The dollar rose and Brent crude hovered above $113 a barrel

as the U.S. and Iran continued to work towards a truce while

trading blows over the Strait of Hormuz.

The U.S. military said on Monday it destroyed six Iranian

small boats and intercepted Iranian cruise missiles and drones

as Tehran sought to thwart a new U.S. naval effort to open

shipping through the Strait of Hormuz.

A stronger U.S. currency makes dollar-priced metals more

expensive for holders of other currencies.

Meanwhile, higher crude oil prices can stoke inflation,

increasing the likelihood of higher interest rates. While gold

is considered an inflation hedge, high interest rates make

yield-bearing assets more attractive, weighing on its appeal.

Traders have largely priced out U.S. interest rate cuts for

this year, with markets now seeing a 37% chance of a hike by

March 2027, compared with 27% of a reduction a week earlier.

Investors now await a slew of key U.S. data this week,

including job openings, the ADP employment report, and the April

payrolls report.

Spot silver was steady at $72.73 per ounce, platinum

gained 1% to $1,964, and palladium was up 0.8% at

$1,492.27.

(Reporting by Noel John in Bengaluru; Editing by Rashmi Aich

and Subhranshu Sahu)