* Brent breaches $119 a barrel as Iran conflict worsens

* US Treasury yields climb but off earlier highs

* Multiple central banks keep rates unchanged

(Updates with close of US markets)

By Chuck Mikolajczak

NEW YORK, March 19 (Reuters) - Global stocks slumped on

Thursday as oil prices spiked after the latest escalation in the

U.S. and Israel's war with Iran, while a host of major central

banks left interest rates unchanged as they attempt to assess

rising price pressure.

Brent crude prices shot above $119 a barrel and further

fanned inflation fears following attacks on Iran's South Pars

gas field, along with the world's largest gas plant in Qatar as

well as on oil refineries in both Saudi Arabia and Kuwait.

Trading in oil futures was volatile, and U.S. crude

settled down 0.19% to $96.14 a barrel while Brent

settled at $108.65 per barrel, up 1.18%. The session high for

Brent above $119 was the second time it crossed that threshold

this month. Prices eased as the Trump administration took steps

to try to expand supply and aftercomments from Israeli Prime

Minister Benjamin Netanyahu.

On Wall Street, U.S. stocks closed lower. Earlier declines

in the small-cap Russell 2000 index briefly brought the

index down more than 10% from its January 22 record closing

high. The benchmark S&P 500 index closed below its 200-day

moving average for the first time since May 9.

The 20-day daily correlation for the S&P 500 to both Brent

and WTI crude is the most negative it has been since November

2004.

"It's been fairly binary in terms of when oil's rising and

inflation and inflation expectations are rising, it's risk off,

and when there's something out there to kind of stabilize oil

prices, we tend to get a little bit of a rally," said Michael

Arone, chief investment strategist at State Street Investment

Management in Boston.

"What this suggests is that investors and capital market

participants are still bought into the idea that this is a

short-duration war with a resolution in sight in the next couple

of months, and anything to refute that causes some challenges."

The Dow Jones Industrial Average fell 203.72 points,

or 0.44%, to 46,021.43, the S&P 500 shed 18.21 points, or

0.27%, to 6,606.49 and the Nasdaq Composite lost 61.73

points, or 0.28%, to 22,090.69.

MSCI's gauge of stocks across the globe fell

8.84 points, or 0.88%, to 996.62 while the pan-European STOXX

600 index fell 2.39%, its biggest daily percentage drop

since March 3 as the index closed at its lowest level in three

months.

Benchmark government bond yields, which set the global cost

of borrowing, also climbed as multiple central banks kept rates

unchangedwhile assessing economic fallout from the surge in

crude prices.

The Bank of England's rate setters voted unanimously to keep

UK rates on hold and said they were "ready to act" to stave off

risks from war in the Middle East.

The yield on two-year gilts surged 29.8 basis

points to 4.404% after earlier touching a 14-month high of

4.486%, although Bank of England Governor Andrew Bailey said

financial markets were getting ahead of themselves in expecting

interest rate rises. Sterling strengthened 1.35% to

$1.3432 against the dollar.

The European Central Bank held its rates as well, warning

that the Iran war was clouding the outlook for growth and

inflation. The Bank of Japan and the U.S. Federal Reserve had

both voiced their concerns about the conflict during their

earlier policy statements, which left their respective rates

unchanged.

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

up 0.4 basis point to 4.261% while the 2-year note

yield, which typically moves in step with interest rate

expectations for the Fed, climbed 5.6 basis points to 3.799

after hitting 3.96%. The two-year yield has shot up 42 basis

points in March.

Earlier this week, the Reserve Bank of Australia hiked rates

to a 10-month high and warned of a "material" risk to inflation

from the oil price spike.

Switzerland's central bank kept its rates at zero, and

signaled it was ready to intervene to curb the recent surge in

the Swiss franc, one of the traditional safe havens in volatile

markets.

The dollar index, which measures the greenback

against a basket of currencies, dropped 1.01% to 99.19, with the

euro up 1.19% at $1.1586.

Against the Japanese yen, the dollar weakened 1.41%

to 157.61 but remained near the key 160 per dollar level

following the BOJ's policy statement, leaving investors on watch

for possible FX intervention after strong comments from Japanese

Finance Minister Satsuki Katayama earlier in the day.

The Bank of Japan had left its short-term policy rate at

0.75% as widely expected overnight, but it joined the U.S.

Federal Reserve and Bank of Canada in striking a cautious tone

about the war and pricing pressures.