By Herbert Lash
NEW YORK (Reuters) - Gold prices shot to almost seven-year highs on Monday as a spike in U.S.-Iranian tensions spurred demand for safe-haven assets and pushed a gauge of global equity markets lower, but shares on Wall Street rebounded on a less worrisome view of events.
Oil rose and the dollar weakened after the U.S. killing last week of General Qassem Soleimani, the architect of Iran's drive to extend its influence across the Middle East. The death raised concerns around the world that a regional conflict could erupt.
Iran's supreme leader wept in grief with thousands of mourners thronging Tehran's streets for Soleimani's funeral, and the slain military commander's successor vowed to expel U.S. forces from the region in revenge.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.19%, while European shares extended losses. The pan-European STOXX 600 index <.STOXX> lost 0.41%.
On Wall Street, the benchmark S&P 500 and Nasdaq turned positive after early declines, a sign investors were taking a cautious approach to the potential for rising hostilities.
The market should be jittery but the recovery from the 9/11 attacks in 2001 and the financial crisis a decade ago have made it easier to take lesser events in stride, said David Kelly, chief global strategist at JPMorgan Asset Management.
"This is a case that the market is probably under-reacting to a threat because we don't know what the Iranians may do to retaliate, and we don't know how the U.S. administration may respond," he said.
However, it is important not to get lulled into complacency because there is some additional risk in the equity market after Soleimani's death and high stock valuations, Kelly noted.
"In the past if you have a big increase in uncertainty, the market sells off first and asks questions later. We're in a different situation now," he said.
The Dow Jones Industrial Average <.DJI> fell 0.93 points, or -0%, to 28,633.95. The S&P 500 <.SPX> gained 5.46 points, or 0.17%, to 3,240.31 and the Nasdaq Composite <.IXIC> added 30.48 points, or 0.34%, to 9,051.25.
Emerging market stocks lost 1.03%, while earlier in Asia, China's blue-chip CSI300 index <.CSI300> ended 0.4% lower and Tokyo's Nikkei average <.N225> fell 1.91% to a one-month low.
Adding to tensions, Iran said it was taking another step back from its commitments under a 2015 nuclear deal with six powers that Washington withdrew from in 2018.
U.S. gold futures
The Swiss franc rose against the dollar on worries about a broader escalation of Mideast conflict and the safe-haven Japanese yen surged to a three-month high before weakening against the greenback.
Edward Moya, senior market analyst at OANDA in New York, said the market is still digesting the implications.
"We're having a little softness in the dollar against safe-haven currencies, but I think risk appetite will return. If Iran does retaliate, they know they're toast," Moya said.
The dollar index <.DXY> fell 0.16%, with the euro
The Treasury yield curve was flatter as the heightened U.S.-Iranian tensions boosted demand for safe-haven assets.
The yield on the benchmark 10-year U.S. Treasury note has fallen more than 5.0% since the close on Jan. 2, just before an overnight U.S. air strike in Baghdad killed Soleimani.
The 10-year U.S. Treasury note
Yields later pulled back to -0.292%, flat on the day.
Oil prices jumped, pushing Brent above $70 a barrel, as rhetoric from the United States, Iran and Iraq fanned tensions in the Middle East.
Brent crude futures
U.S. West Texas Intermediate
(Reporting by Herbert Lash, additional reporting by Gertrude Chavez-Dreyfus in New York; Editing by Dan Grebler and Nick Zieminski)
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Updated Date: Jan 07, 2020 03:06:19 IST