LONDON, March 9 (Reuters) - The pound tumbled on Monday

as investors rushed to the safety of the U.S. dollar and ditched

the currencies of countries most exposed to rising energy costs,

as the U.S.-Iran war sent oil prices surging to $120 a barrel.

Sterling was last down 0.81% at $1.331 and on track

for its biggest daily fall in over a month.

Meanwhile, British government bonds tumbled for a third day

and stocks dropped as investors weighed up the potential impact

on the UK economy.

Oil prices jumped more than 25% to their highest levels

since mid-2022 on Monday, with the global benchmark Brent crude

touching $119.50 per barrel.

Major Gulf producers cut supplies and shipping disruptions

rattled the market as the U.S.-Iran war showed few signs of

slowing down.

"It's been the biggest jump since the outbreak of the

pandemic, and investors are bracing for an inflation crisis,"

said Susannah Streeter, chief investment strategist at Wealth

Club.

The Financial Times reported that G7 finance ministers plan

to discuss a possible release of petroleum from reserves,

helping temper some of the market moves. Brent crude was

last up 16% at $107.80 a barrel.

Traders were weighing the potential costs of government

support for energy bills after UK Prime Minister Sir Keir

Starmer said supporting people with the cost of living would be

at the top of his mind.

"A market theme for this week is set to be consideration of

the implications of potential fiscal interventions to manage the

impact of higher energy prices," said Sam Hill, head of market

insights at Lloyds Bank.

Hill and his colleagues said UK support for households

related to the Russia-Ukraine spike energy prices in 2022-2023

is estimated to have cost 52 billion pounds ($69 billion).

Sterling was little changed against the euro, which also

tumbled against the dollar as investors moved into a currency

seen as a safe haven thanks to its dominant role in global

finance.

The dollar has also benefited from the United States' status

as a leading oil and gas producer. By contrast, Britain and the

euro zone are heavily reliant on oil and gas imports.

The euro was last flat against the pound at

86.63 pence.

British government bonds tumbled again on Monday with yields

on 10-year gilts surging more than 15 basis points

(bps) to their highest levels since September at 4.776%. Yields

rise as prices fall and vice versa.

Traders on Monday were pricing in a more than 50% chance the

Bank of England raises interest rates this year, a sharp

reversal from February when two cuts were priced in.

The FTSE 100 fell 1.5% in early trading,

outperforming broader European shares which were down 2% thanks

to the index's larger weighting of energy companies.

($1 = 0.7499 pounds)