(Updates with details on afternoon trading)

*

Airline stocks slide as Israel hits targets in Iran

*

US defense firms rise on Israel-Iran conflict

*

Oracle surges for second day on AI optimism

*

S&P 500 -0.69%, Nasdaq -0.68%, Dow -1.42%

By Noel Randewich, Kanchana Chakravarty

June 13 (Reuters) - Wall Street dropped on Friday after

Israel struck nuclear facilities and missile factories in Iran,

escalating tensions in the Middle East and undermining global

investor confidence.

Israel's attacks were aimed at preventing Tehran from building

an atomic weapon, while Iran has promised harsh reprisals.

Oil prices surged nearly 7% on fears the conflict could disrupt

crude supply from the Middle East. U.S. energy stocks rose in

tandem, with Exxon rallying 1.8% and Diamondback Energy ( FANG )

rising 3%.

Airline stocks fell on fears that fuel costs could climb.

Delta Air Lines ( DAL ) lost 2.2%, United Airlines fell

3.1% and American Airlines ( AAL ) declined 3.5%.

Defense stocks climbed, with Lockheed Martin ( LMT ) up

3.4%, RTX Corporation ( RTX ) gaining 3.3% and Northrop Grumman ( NOC )

rising 3.5%.

"I don't think it's going to escalate, and if it does, it'll

be a small escalation, not a big escalation," said Thomas

Martin, senior portfolio manager at Globalt in Atlanta. "The

market reaction is directionally what you would expect, and yet

fairly muted in terms of magnitude."

The S&P 500 was down 0.69% at 6,003.57 points.

The Nasdaq declined 0.68% to 19,529.78 points, while the Dow

Jones Industrial Average was down 1.42% at 42,355.49 points.

Ten of the 11 S&P 500 sector indexes declined, led lower by

financials, down 1.77%, followed by a 1.2% loss in real

estate.

Photoshop maker Adobe fell 5% as concerns that the pace

of the company's AI adoption was too slow overshadowed an

increased annual revenue forecast.

Oracle jumped 7% to a record high, and it is now up

more than 21% in two days since the technology company gave an

upbeat forecast driven by demand for its AI services.

Nvidia ( NVDA ) dipped 1.6% and Apple ( AAPL ) lost 0.9%.

Visa and Mastercard ( MA ) both lost over 4% after the

Wall Street Journal reported that major retailers are exploring

cryptocurrencies that could eliminate the need for payment

intermediaries.

Shares of Boeing ( BA ) fell 1.4%, weighing on the blue-chip

Dow.

A tame consumer price report, softer-than-expected producer

price data and largely unchanged initial jobless claims earlier

this week helped calm investor jitters around tariff-driven

price pressures. U.S. Federal Reserve policymakers are widely

expected to keep interest rates unchanged at their meeting next

week.

With investors betting the United States will reach trade

agreements that reduce President Donald Trump's steep trade

barriers, the S&P 500 is now trading just below its February

record highs.

The University of Michigan's Surveys of Consumers showed

consumer sentiment improved for the first time in six months in

June amid trade uncertainty.

Declining stocks outnumbered rising ones within the S&P 500

by a 4.8-to-one ratio.

The S&P 500 posted 10 new highs and 4 new lows; the Nasdaq

recorded 32 new highs and 103 new lows.