By Marc Jones
LONDON, March 5 (Reuters) - Wall Street took an early dip on Thursday as the Iran conflict drove up oil prices and the dollar, and triggered a fresh wave of selling in increasingly nervous global bond markets.
The uncertainty sparked another day of see-saw moves. Asian stocks surged overnight after South Korea's president ordered support for its bruised markets, though Europe gave up gains by the time Wall Street reopened in the red. [.N][.EU]
Iran had launched a wave of missiles at Israel
and the bombing of Tehran also intensified, all after Republican Senators in Washington on Wednesday had blocked a bipartisan move to halt the U.S. air assault.
U.S. Energy Secretary Chris Wright said the impact of the conflict on energy markets would be a "small price" to pay for achieving the military goals. But International Monetary Fund head Kristalina Georgieva warned it was already testing the global economy's resilience.
"The main barometers here are the crude oil price the spike in bond yields and the dollar," Saxo Bank's John Hardy said, adding that markets were still not prepared for the conflict lasting anything more than a few weeks.
With oil heading toward $85 a barrel, the euro, pound and benchmark government bonds were back under pressure. [O/R]
"What is quite notable is that the oil prices haven't come down," said Royal London Asset Management's Trevor Greetham, pointing to experts expressing doubts over U.S. President Donald Trump's pledge in recent days to provide insurance for oil tankers against attacks.
Overnight action in Asia was volatile again. South Korea's KOSPI index closed up almost 10%, erasing most of its worst-ever daily drop a day earlier.
The rebound came after President Lee Jae Myung ordered activation of a $68 billion market stabilisation fund, citing the need to smooth volatility caused by "the escalating crisis in the Middle East".
Japan's Nikkei jumped nearly 2%, while Chinese shares climbed almost 1% after party leaders in Beijing unveiled a 4.5%-5% economic growth target for this year as part of longer-term plans. [.T][.SS]
OIL PRESSURE
Concerns about energy supply continued to drive the broader narrative.
Brent crude, which has gained more than 15% since the weekend's U.S. and Israeli air strikes on Iran, climbed as high as $84.25 per barrel and was still close to $84 as U.S. trading gathered momentum. [O/R]
Ship-tracking data show around 300 oil tankers stuck in the Strait of Hormuz, with traffic through the chokepoint all but halted since the outbreak of war.
Royal London's Greetham said surging natural gas prices were prompting bond investors to scale back expectations of global rate cuts and weigh the potential for hikes.
The yield on benchmark U.S. 10-year notes, which moves inversely to prices, rose nearly 6 basis points to 4.14%.
Moves were also choppy in Europe, where the key German bund market is heading for its steepest weekly selloff in a year and traders now see a 60% chance of an ECB rate hike by December. [GVD/EUR]
The dollar also resumed its gains after a breather in the previous session. The dollar index, which measures the greenback against a basket of currencies, rose 0.3%. The euro dipped the equivalent amount to $1.1600, while the yen inched down to 157.20 per dollar. [/FRX]
Traditional safe-haven gold see-sawed too. It rose as high as $5,175 an ounce before easing back to $5,100 in busy trading.
A number of European Central Bank officials, including its president, Christine Lagarde, are due to speak later. Investors are scouring remarks for any hint on how the current situation may shape policy thinking.
German Bundesbank chief Joachim Nagel was already out with a warning a long war in Iran would push up inflation and hurt growth, although he stressed it was still too early to draw any firm conclusions.
"The recent dynamics could also be relevant for the March ECB projections," Commerzbank strategist Erik Liem said.
"The cutoff date is usually around two weeks before the meeting."
(Reporting by Rocky Swift; Editing by Sonali Paul, Edwina Gibbs, Alexandra Hudson and Nivedita Bhattacharjee)
