By Gregor Stuart Hunter and Medha Singh
Sept 2 (Reuters) - World stocks fell on Wednesday as fresh U.S. airstrikes on Iran pushed oil prices to five-week highs, stoking inflation concerns and extending a global bond selloff.
The U.S. struck Iranian military targets near the Strait of Hormuz, while Tehran said it had targeted U.S. assets across the region, marking the most significant exchange of fire in weeks.
Fears of further disruption to energy supplies lifted oil prices, with Brent crude futures
last up 0.1% at $94.87 a barrel. [O/R]
"The recent increase in energy prices has put additional upward pressure on bond yields, which had already been on the rise on the back of some fiscal concerns," said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.
The yield on the benchmark U.S. 10-year Treasury bond rose to an intraday high of 4.8122%, its highest level in almost three years, while the yield on the 10-year Japanese government bond held above 3% for a second straight session after hitting a three-decade high earlier this week.
Rising yields tend to support the U.S. dollar by boosting its appeal as a safe-haven asset, while reducing demand for equities and other riskier investments.
The U.S. dollar index, which measures the greenback against a basket of six currencies, was up 0.05% at 99.734, near its highest since August 17.
"With the market already pricing quite a hawkish outlook for the Fed, we think there's much more scope for downward surprises for the dollar than there is for some of the other currencies," Ganesh said.
MSCI's gauge of global stocks fell 0.2% and hovered near a one-month low. The pan-European STOXX 600 fell 0.3%, after sharper losses in Asia following Wall Street's overnight selloff.
South Korea's KOSPI dropped almost 4%, while the Nikkei 225 was down 2.9%.
U.S. stocks index futures pointed to a muted open.
DATA DEPENDENT
The escalation in the Middle East and the global bond selloff have given September a shaky start, adding to pressure on markets days after hawkish comments from Federal Reserve Chair Kevin Warsh prompted investors to increase bets on another U.S. interest rate hike.
Ahead of the Fed's September 16 meeting, investors are looking to upcoming U.S. economic data for clues on whether the economy remains strong enough to justify another rate increase. ADP private payrolls data is due on Wednesday and the nonfarm payrolls report on Friday.
Fed funds futures imply a 68% chance of a 25-basis-point rate increase this month, up from 37% a week ago, according to CME Group's FedWatch tool.
The New Zealand dollar was down 1.2% at $0.58220 after the Reserve Bank of New Zealand hiked interest rates by 25 basis points to 2.75%, as expected. However, hawkish language in the central bank's statement weighed on the currency.
Gold was down 0.1% at $4,322.24 an ounce, while bitcoin edged 0.6% lower to $76,951.01 and ether was off 1% at $2,394.57.
(Reporting by Gregor Stuart Hunter. Editing by Tom Hogue and Mark Potter)
