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Investors rush to safe havens like Treasuries and gold

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Oil prices jump amid fears of supply disruptions

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Upcoming U.S. election, jobs report add to uncertainty

(Updates Oct 1 story with comment, prices at 0711 GMT)

By Saqib Iqbal Ahmed and Amanda Cooper

NEW YORK/LONDON, Oct 2 (Reuters) - Iran's attack on

Israel has rekindled the allure of safe havens and oil has

surged, but with no clarity yet on how the Middle East might

evolve, investors are treading tentatively.

Their key question is whether Iran's strike marks an

escalation, or is more of a one-off backlash.

Mohit Kumar, a strategist at U.S. investment bank Jefferies

called the market reaction so far "guarded" as investors await

Israel's response.

Israel has said there will be consequences after Iran said

it fired a salvo of ballistic missiles in what Tehran said was a

retaliation for the Israeli campaign against Hezbollah.

Classic safe-havens like gold, government bonds and the

Swiss franc surged on Tuesday and were holding most of those

gains on Wednesday, while oil traded at $75 a barrel.

"Geopolitics is impossible to trade and hence keeping a low

risk profile would be a prudent strategy," Kumar said.

Past bouts of heightened geopolitical tension, such as

Russia's invasion of Ukraine in 2022, resulted in sharp but

short-lived market moves during which investors fled risky

assets and piled in to havens such as gold and the dollar.

Global stocks traded cautiously higher on Wednesday, while

government bonds gave up some of Tuesday's gains.

This time, investors' decisions may rest on Israel's

response and whether the conflict with Iran escalates.

"The market ... is highly sensitive to any scenario worse

than this," said Hasnain Malik, head of emerging and frontier

markets equity strategy at Tellimer.

Gold is already up nearly 30% this year, thanks in

large part to a decline in the dollar in response to a slowing

U.S. economy and the Federal Reserve's decision to deliver steep

interest-rate cuts to ward off more weakness.

A previous round of Iranian missiles fired at Israel in

April - the first ever - were shot down with the help of the

U.S. military and other allies. Israel responded at the time

with airstrikes in Iran, but wider escalation was averted.

Stocks and other risky assets sold off in April but

rebounded within days as fears of a broader conflict and

economic disruption dissipated.

However, "if the war escalates, that of course is not good

for markets," said Allan Small, senior investment adviser with

Allan Small Financial Group with iA Private Wealth in Toronto.

One specific concern for investors is oil prices, which

jumped on Tuesday. Investors worry that the fears of supply

disruptions from the Gulf will push crude prices sharply higher,

as happened in prior periods of intense strain or conflict.

"The deeper the conflict intensifies, oil could indeed surge

higher as risk rises that the military response veers into the

oil producing area around Iran," Quincy Krosby, chief global

strategist for LPL Financial, said in a note.

Beyond tensions in the Middle East, there are several

potential catalysts that could keep investors on edge, including

the upcoming U.S. election in November and a key jobs report

this week that will help shape the Fed's policy direction.

Futures on the Cboe Volatility Index, an

options-based indicator of demand for protection from market

swings, edged lower on Wednesday, reflecting a return of a sense

of calm. The VIX itself hit a three-week high of 20.73 on

Tuesday.

"Although the VIX is edging higher it remains sufficiently

just below 20 to suggest that markets - including the crude oil

market - do not yet envision an all-out military scenario,"

Krosby said.

For now, market participants are left guessing whether the

latest bout of fear will prove fleeting.

"Markets ... are likely to display an incredibly high

sensitivity to incoming geopolitical news flow in the coming

hours," said Michael Brown, senior research strategist at

Pepperstone.

(Additional reporting by Suzanne McGee, Bansari Mayur Kamdar,

Lisa Pauline Mattackal and Lewis Krauskopf; Writing by Ira

Iosebashvili and Amanda Cooper; Editing by Megan Davies, Matthew

Lewis and Alexander Smith)