March 3 (Reuters) - U.S. stock index futures fell as investors assessed the fallout of intensified U.S. and Israeli strikes on Iran and braced for the possibility that a surge in energy prices could drive inflation higher.
With the conflict showing little sign of cooling, oil jumped 2.2%, gold extended its rally for a fifth straight session, the dollar strengthened, and the U.S. 10-year Treasury yield jumped to its highest level in more than a week.
The U.S. and Israel launched an air campaign against
Iran on Saturday, striking Tehran and killing Iranian Supreme Leader Ali Khamenei. In response, Iran and its proxy Hezbollah retaliated, drawing the wider Gulf region into the escalating conflict.
U.S. President Donald Trump sought to justify a broad, open-ended war, saying on Monday the campaign was ahead of expectations.
Investors worried about the inflation shock that could follow an energy squeeze.
With the Strait of Hormuz closed to marine traffic, a surge in oil prices could quickly seep into the broader economy, complicating an already jittery outlook for the Federal Reserve as hot inflation readings pile up and policymakers show signs of diverging views.
That backdrop has reinforced expectations that the Fed is unlikely to cut interest rates anytime soon.
Attention now turns to a packed slate of U.S. data later this week, including January retail sales, ADP employment figures and the closely watched non-farm payrolls report.
At 02:41 a.m. ET, Dow E-minis were down 494 points, or 1.01%, S&P 500 E-minis were down 72.5 points, or 1.05%, Nasdaq 100 E-minis were down 332.75 points, or 1.33%.
On Monday, Wall Street opened weaker but found its footing as bargain-hunters stepped in, with a strong bid returning to AI bellwethers such as Nvidia and Microsoft.
Travel and airline stocks, however, took a beating amid flight cancellations, higher jet-fuel costs and sweeping Middle East airspace closures. The S&P 500 ended flat, the Nasdaq added 0.4%, and the Dow slipped 0.1%.
Markets will also be looking out for fresh signals from the Fed, especially given recent divisions over the path of rates. John Williams, a voting member, Jeffrey Schmid, and Neel Kashkari are scheduled to speak later in the day.
(Reporting by Pranav Kashyap in Bengaluru; Editing by Saumyadeb Chakrabarty)
