(Corrects MSCI's gauge of stocks across the globe in paragraph
6 to a decline of 0.52% instead of a gain of 0.80%; corrects day
of week in paragraph 27 to Thursday instead of Monday)
* Killing of Iranian commander douses equity market rally
* Oil, gold prices surge after strike in Baghdad
* Scramble for safety boosts yen, Swiss franc, Bunds
* European, U.S. shares fall less than 1%
By Herbert Lash and Marc Jones
NEW YORK/LONDON, Jan 3 (Reuters) - Oil prices surged as much
as $3 a barrel as gold, the yen and safe-haven bonds all rallied
on Friday after the U.S. killing of Iran's top military
commander in an air strike in Iraq ratcheted up tensions between
Washington and Tehran.
Traders were spooked after the death of Major General Qassem
Soleimani, head of the elite Quds Force who was also one of
Iran's most influential figures, and by Iranian Supreme Leader
Ayatollah Ali Khamenei's vow of revenge.
U.S. Secretary of State Mike Pompeo said the strike aimed to
disrupt an "imminent attack" that would have endangered
Americans in the Middle East. The most dramatic moves were in the oil markets, with Brent
crude futures LCOc1 leaping as much 4.5% to $69.20 a barrel,
the highest level since Saudi crude facilities were attacked in
September.
The impact hit almost every asset class. O/R
MSCI's gauge of stocks across the globe .MIWD00000PUS
declined 0.52%, while its emerging markets index lost 0.40%.
Europe's broad STOXX 600 index .STOXX fell as much as 1%,
but pared losses to close down 0.33%, while shares on Wall
Street fell around 0.8% as New Year optimism, which had pushed
equity markets to record highs, evaporated.
The yen JPY= rose half a percent against the dollar to a
two-month high, the Swiss franc EURCHF= hit its highest level
against the euro since September and gold prices XAU= climbed
to a four-month peak, racing past the key $1,550 an ounce level.
"Geopolitics has come back to the table, and this is
something that could have major cross-asset implications," said
Salman Ahmed, Lombard Odier's chief investment strategist.
"What is critical is how it pans out in the next few days,"
Ahmed said. "Whether it turns into a theme depends on Iran's
reaction and then the U.S. response."
Iran promised harsh revenge. The Quds Force and its
paramilitary proxies have ample means to mount a response.
In September, U.S. officials blamed Iran for attacking the
oil installations of Saudi Aramco, the state energy giant and
the world's largest oil exporter. Iran has denied responsibility
for the strikes and accused Washington of warmongering.
The Trump administration then did not respond, beyond heated
rhetoric and threats, and markets settled down within a week
after Brent surged 14.6%, its biggest one-day percentage gain
since at least 1988, on Sept. 16.
The U.S. government and others on Friday urged their
citizens in the region either to return home or to stay away
from potential targets and public gatherings. President Hassan Rouhani said the killing would stiffen
Iran's resistance to the United States.
Pompeo said in a round of TV interviews that the United
States remained committed to de-escalation with Iran but that it
had needed to defend itself.
"He (Soleimani) was actively plotting in the region to take
actions - a big action as he described it - that would have put
dozens if not hundreds of American lives at risk. We know it was
imminent," Pompeo told CNN.
Stocks on Wall Street opened down 1%, the lowest point of
the session, as losses were later pared a bit.
The Dow Jones Industrial Average .DJI fell 233.92 points,
or 0.81%, to 28,634.88. The S&P 500 .SPX lost 23 points, or
0.71%, to 3,234.85 and the Nasdaq Composite .IXIC dropped
71.42 points, or 0.79%, to 9,020.77.
The global gauge and Wall Street indexes set record closing
highs on Thursday, extending the year-end rally in equities into
2020.
Brent settled $2.35 higher at $68.60 after rising as high as
$69.20.
West Texas Intermediate (WTI) crude CLc1 rose $1.87 to
settle at $63.05 a barrel, after earlier spiking to $64.09 a
barrel, its highest level since April 2019.
SCRAMBLE TO SAFETY
Yields on German Bunds and U.S. Treasuries - the world's
benchmark government bonds that are typically seen as the safest
assets - fell sharply.
The 10-year Bund DE10YT=RR yield fell 7 basis points to a
two-week low of -0.299%, while Bund futures FGBLc1 were up
0.62% at 172.33 euros.
Benchmark 10-year Treasury notes US10YT=RR rose 26/32 in
price to yield 1.7916%, from 1.882% late on Thursday.
Spot gold prices hit a high of $1,553.20 an ounce. U.S. gold
futures GCcv1 settled 1.5% higher at $1,552.40.
The dollar index .DXY rose 0.05%, with the euro EUR=
down 0.09% to $1.116. The Japanese yen JPY= strengthened 0.41%
versus the greenback at 108.13 per dollar.
The focus on geopolitics meant markets paid little attention
to stronger-than-expected data from France, where inflation rose
1.6% year-on-year in December, beating analysts' expectations
for a 1.4% rise.
German inflation figures were also higher, although
unemployment in Europe's largest economy rose more than
expected. The U.S. manufacturing sector contracted in December by the
most in more than a decade, with order volumes crashing to near
an 11-year low and factory employment falling for a fifth
straight month, the Institute for Supply Management said.
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