The volatility gauge, India VIX, slumped 17 percent on early Thursday as the risk of a direct military confrontation between the US and Iran eased after US President Donald Trump said the US will impose sanctions on Iran instead of military action.

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President Donald Trump on Wednesday tempered days of angry rhetoric and suggested Iran was "standing down" after it fired missiles at US forces in Iraq overnight, as both sides looked to defuse a crisis over the US killing of an Iranian general

Trump said the United States did not necessarily have to hit back at Iran's attack on military bases housing US troops in Iraq, itself an act of retaliation for the Jan. 3 US strike that killed Iranian commander Qassem Soleimani.

Trump said no Americans were hurt in the overnight attacks. The Pentagon said Iran had launched 16 short-range ballistic missiles, at least 11 of which hit Iraq's al-Asad air base and one that hit a facility in Erbil but caused no major damage.

"The fact that we have this great military and equipment, however, does not mean we have to use it. We do not want to use it. American strength, both military and economic, is the best deterrent," Trump said.

"Our great American forces are prepared for anything. Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world," he said.

Trump did not directly threaten military action but said the United States "will immediately impose additional punishing economic sanctions on the Iranian regime" in response to what he called "Iranian aggression." He offered no specifics.

The volatility gauge had surged more than 30 percent over the past few sessions as uncertainty around the crisis in West Asia weighed on investors' appetite.

The index traded 9.07 percent at 14.22 points at 9.50 am. Benchmark indices, the BSE Sensex traded almost 400 points higher above the 41200 mark. The Nifty also traded near 12150, up over 120 points.

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