(Updates with European trading)

* Spot gold down over 3% so far this week

* Oil heads for weekly gain

* India gold discounts widen to one-month high this week

By Sukanya Mitra

July 17 (Reuters) - Gold ticked up on Friday, but was set

for a weekly decline as U.S.-Iran tensions pushed oil prices

higher, raising inflation concerns and supporting an outlook for

higher U.S. interest rates.

Spot gold rose 0.7% to $3,996.29 per ounce by 1010

GMT, after touching its lowest since July 1 earlier in the day.

Prices were down over 3% so far for the week.

U.S. gold futures for August delivery gained 0.2% to

$4,000.00.

"When prices go down there, there's bound to be some short

sellers who take profit," said Fawad Razaqzada, a market analyst

at Forex.com.

"If oil were to go higher, it will continue to weigh on gold

because that will boost inflation expectations, which in turn

means that interest rates will be higher and people would be

attracted to buying bonds instead," Razaqzada added.

Expectations of higher interest rates dent gold's appeal as

it is a non-yielding asset.

Iran said it launched fresh strikes on U.S. facilities in the

Middle East on Friday, after a sixth straight night of

Washington's strikes on Iranian military facilities limiting

traffic through the Strait of Hormuz. Oil prices headed for a

weekly gain.

On Thursday, Dallas Federal Reserve President Lorie Logan became

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

publicly call for an interest rate hike.

Meanwhile Fed Vice Chair Philip Jefferson suggested he would be

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

inflation.

Traders are now pricing in about a 50% chance of a September

rate hike, according to the CME FedWatch Tool.

Meanwhile, gold discounts widened in India to a one-month high

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

while premiums in China were largely steady.

Among other metals, spot silver fell 0.03% to

$55.4891, platinum dropped 1.7% to $1,589.41, and

palladium rose 0.7% to $1,257.65.