* Largest gold exchange-traded fund reports more inflows
* Coming Up: U.S. Existing home sales Feb at 1400 GMT
* GRAPHIC-2016 asset returns: http://reut.rs/1WAiOSC (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 XAU= was down 0.7 percent at $1,246.32 an ounce at 1437 GMT, while U.S. gold futures GCv1 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. Treasury yields rose on Monday after two Federal Reserve officials gave bullish projections on inflation. US/
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 GLD , 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. GOL/ETF
Silver XAG= was up 0.2 percent at $15.81 an ounce, while platinum XPT= was up 1.2 percent at $978.70 an ounce and palladium XPD= was up 1 percent at $595 an ounce.
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