March 2 (Reuters) - UK stock indexes fell on Monday, swept up in a global selloff, as an escalating military conflict in the Middle East sparked a jump in oil prices and pushed investors towards safe-haven assets.
Oil prices surged almost 8% after retaliatory Iranian attacks disrupted shipping in the crucial Strait of Hormuz following the weekend's bombing by Israel and the United States that killed Iranian Supreme Leader Ayatollah Ali Khamenei. [O/R]
While British oil majors such as Shell rose 2%
and defence companies like BAE Systems climbed 4.9%, other equity sectors, particularly banks and travel companies, came under heavy selling pressure as investors braced for travel and economic disruptions.
The blue-chip FTSE 100 fell 1% by 1131 GMT, having touched a record high in the prior session, while the domestically oriented FTSE 250 index tumbled 1.3%.
"If the issues persist, then the market will start to worry about new inflationary pressures and that could lower expectations for near-term interest rate cuts," said Dan Coatsworth, head of markets at AJ Bell.
Heavyweight banks, including HSBC, Barclays and Lloyds Banking Group fell between 2.7% and 4.7%, as surging oil prices fuelled concerns about a resurgence of inflation.
British government bond yields rose as investors trimmed their expectations for Bank of England interest rate cuts. Traders were pricing in a 74% chance that the BoE will cut rates later this month, down from about 78% last week.
British Airways operator IAG fell 5.8% after the airline said on Saturday it had cancelled flights to Tel Aviv and Bahrain until March 3. The broader FTSE 350 travel & leisure index fell 4.6%, with hotels and cruise operators among the major decliners.
Senior, which supplies components to aircraft manufacturers, including Boeing and Airbus, fell 3.7% despite reporting upbeat results.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Harikrishnan Nair)
