* Major brokerages see greater chance of hikes for BoE

and ECB this year

* Markets starting to price in potential for Fed hikes

* Oil prices remain choppy

(Updates with close of European markets)

By Chuck Mikolajczak

NEW YORK, March 20 (Reuters) - Global shares slumped for

a third straight session and were set for a third consecutive

weekly decline on Friday while bond yields climbed on fears the

Iran war would keep upward pressure on oil prices and spark

inflation.

Iran attacked an oil refinery in Kuwait on Friday and Israel

killed a spokesman of Iran's Revolutionary Guards, while three

U.S. officials told Reuters that thousands of additional U.S.

troops will be deployed to the Middle East.

Iraq declared force majeure on all oilfields developed by

foreign oil companies, as military operations in the region have

disrupted navigation through the Strait of Hormuz, preventing

most of the country's crude exports from moving, oil ministry

sources said.

On Wall Street, U.S. stocks slumped, with the S&P 500 energy

index the best performer of the 11 major S&P 500

sectors. The S&P 500 energy index is up 3.5% on the week,

putting it on track for its 13th straight weekly gain. That

week-over-week rally would be its longest since at least the

late 1980s, according to LSEG data.

The Dow Jones Industrial Average fell 285.29 points,

or 0.62%, to 45,736.14, the S&P 500 dropped 70.00 points,

or 1.06%, to 6,536.49 and the Nasdaq Composite tumbled

341.79 points, or 1.56%, to 21,748.90. The S&P 500 is on track

for its fourth straight weekly decline, its longest streak of

weekly losses since February 2025.

CENTRAL BANKS' POLICY

Global bond yields have moved higher, after policy

announcements from multiple central banks this week indicated

that interest rates were likely to either be on hold, or could

potentially move higher should the war keep pressure on prices.

The yield on benchmark U.S. 10-year notes shot

up 10.3 basis points to 4.386% and is poised for its third

straight weekly gain.

The 2-year note yield, which typically moves in

step with interest rate expectations for the Fed, gained 6.3

basis points to 3.896%, and was on pace for its largest

three-session jump since May as markets begin to price in the

possibility of rate hikes from the central bank this year.

Markets are now pricing in an increase in rates of 5 basis

points this year, after pricing in about 50 basis points worth

of cuts in recent weeks.

"There is some belief that the Federal Reserve may raise

interest rates this year due to rising inflationary pressures,

although I think that would be quite asinine because this is not

a demand issue," said Robert Pavlik, senior portfolio manager at

Dakota Wealth Management in Fairfield, Connecticut.

"This is a supply issue ... you need to get the Strait of

Hormuz opened up and you need to get oil flowing, and that would

relieve the pressure on oil prices."

MSCI's gauge of stocks across the globe

tumbled 12.55 points, or 1.26%, to 982.61 and is down about 7%

over the past three weeks, its biggest drop in nearly a year,

and the pan-European STOXX 600 index dropped 1.78% and

suffered its third straight week of declines.

Major global brokerages see a higher likelihood of the

European Central Bank and Bank of England delivering rate hikes,

potentially as early as April, after policymakers warned that

the Middle East war is driving renewed inflation risks.

ENERGY CHOKEHOLD

Euro zone government bond yields rose for a third day in a

row, while the British 10-year gilt yield soared to

its highest since July 2008 at 5.022%. It was last up 14.7 basis

points to 4.995%.

Germany's two-year yield, which is up around 55

basis points for the month, was last up 10.2 bps at 2.668%.

U.S. crude rose 2.81% to $98.84 a barrel and Brent

rose to $112.27 per barrel, up 3.33% in choppy trade.

Crude was lower earlier in the day after the U.S. outlined

moves to manage the oil supply crisis, while leading European

nations, Japan and Canada offered to join efforts to secure safe

passage for ships through the Strait of Hormuz.

Natural gas prices have also surged, with those in Europe

rocketing as much as 35% on Thursday, as Iranian and Israeli

strikes hit some of the Middle East's most important gas

infrastructure.

DOLLAR FALLS FROM PEAK

The dollar index, which measures the greenback

against a basket of currencies, gained 0.28% to 99.56, with the

euro down 0.25% at $1.1559. The greenback was poised for

its first weekly decline in three.

Two Fed officials said the war and its impact on energy

markets were clouding the outlook for the economy and monetary

policy, as one policymaker laid out an outlook calling for

notably more interest rate cuts than most U.S. central bank

officials currently support.

Against the Japanese yen, the dollar strengthened

0.98% to 159.25, moving closer to the 160 mark that has prompted

intervention in the currency by Japanese officials.