PRECIOUS-Gold extends losses for third day as dollar arrests slide

* Largest gold exchange-traded fund reports more inflows
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 (Updates prices, adds comment)
    By Jan Harvey
    LONDON, March 21 (Reuters) - Gold fell on Monday, extending
losses for a third day as the dollar arrested three weeks of
falls, but the metal was underpinned by expectations that the
ultra-low interest rate environment will persist.
    The dollar rose 0.2 percent against a basket of currencies,
paring losses made last week after U.S. Federal Reserve
policymakers revised down the number of times they expect to
raise interest rates this year to two from four.
   Spot gold was down 0.7 percent at $1,246.32 an ounce
at 1437 GMT, while U.S. gold futures for April delivery
were down $7.20 an ounce at $1,247.10. 
    The metal has risen 17 percent this year as expectations for
fresh rate hikes faded. It rallied on Wednesday after the Fed
statement, but failed to revisit the previous week's 13-month
high and slid down as the dollar rebounded. 
    Capital Economics analyst Simona Gambarini said the prospect
of the Easter holidays in Europe at the end of the week had also
cost gold some momentum. 
    "We had quite a lot of news last week, whereas this week is
relatively light, so there could be less trading and therefore a
bit less momentum in prices," she said. "Also, the U.S. dollar
has strengthened a bit."
    "(But) we think this is just a short-term move, perhaps some
profit taking by short-term investors," she added. "The reasons
to invest in gold remain intact, mostly rising inflation
expectations and inflationary pressures."
    Market indicators are signalling that investors see stronger
risks of inflation, which has been almost non-existent since the
credit crisis, despite scepticism from the Fed. 
     U.S. Treasury yields rose on Monday after two Federal
Reserve officials gave bullish projections on inflation. 
    Some economists fear that ultra-low interest rates around
the world will eventually stoke inflationary pressures. Gold has
benefited from low rates, which cut the opportunity cost of
holding non-yielding assets like gold.
    "Despite the Fed's 'lower for longer' stance, it still looks
to be one of the more hawkish central banks, compared with the
European Central Bank and Bank of Japan with zero and negative
interest rate policies respectively," Mitsubishi analyst
Jonathan Butler said. 
    Holdings of gold-backed exchange-traded funds, which issue
securities backed by physical metal, continued to rise.
    The largest, New York-listed SPDR Gold Shares,
reported an 11.9-tonne inflow on Friday, bringing its total
inflow for the year to 176.6 tonnes, up from 40.8 tonnes in the
same period of last year. 
    Silver was up 0.2 percent at $15.81 an ounce, while
platinum was up 1.2 percent at $978.70 an ounce and
palladium was up 1 percent at $595 an ounce.

 (Additional reporting by Melanie Burton in Melbourne; Editing
by Mark Trevelyan and Louise Heavens)