(Updates to midday US trading)

*

Israel hits Iran nuclear facilities, missile factories

*

Crude surges as much as 14% on supply risks

*

Dow slumps, European, Asian shares also down

*

Dollar regains ground, Treasury yields spike

By Lawrence Delevingne, Dhara Ranasinghe

June 13 (Reuters) - World stock markets fell on Friday,

and oil prices surged, as Israel launched military strikes on

Iran, sparking inflows into safe havens such as gold and the

dollar.

An escalation in the Middle East - a major oil-producing region

- adds uncertainty to financial markets at a time of heightened

pressure on the global economy from U.S. President Donald

Trump's unpredictable trade policies.

Early on Friday, Trump urged Iran to make a deal over its

nuclear programme, saying there was still time for the country

to prevent further conflict with Israel.

Brent crude oil prices were last up 5.5% at $73.22 per barrel

, having jumped as much as 14% during Asian trading

hours. They were set for their biggest one-day jump since 2022,

when energy costs spiked after Russia's invasion of Ukraine.

U.S. oil futures rose 7.3% to around $73.

Gold, a safe haven in times of global uncertainty, rose

1.1% to $3,422 per ounce, bringing it close to the record high

of $3,500.05 from April.

The rush to safety was matched by a dash out of risk assets.

The Dow Jones Industrial Average fell 0.9%, the S&P 500

dropped 0.34%, and the Nasdaq Composite lost

0.4%. European shares dropped almost 1%, and in Asia,

major bourses in Japan, South Korea, and Hong Kong fell over 1%

each.

"The re-emergence of major conflict in the Middle East

should raise geopolitical stress, including sharply higher oil

prices," Sameer Samana, head of global equities and real assets

at Wells Fargo Investment Institute, said in an email. Samana

added, though, that the conflict should represent a buying

opportunity for long-term investors, including in U.S. large-cap

stocks and commodities.

Israel said it had struck Iran's nuclear facilities and

missile factories and killed a swathe of military commanders in

what could be a prolonged operation to prevent Tehran from

building an atomic weapon.

Trump suggested Iran had brought the attack on itself by

resisting U.S. demands in talks to restrict its nuclear

programme, and urged it to make a deal, "with the next already

planned attacks being even more brutal."

Washington said it had no part in the operation, however.

The developments mean another major geopolitical risk has

become a reality at a time when investors are wrestling with

shifts in U.S. economic and trade policies.

"The geopolitical escalation adds another layer of

uncertainty to already fragile sentiment," said Charu Chanana,

chief investment strategist at Saxo, adding that crude oil and

safe-haven assets will continue rising if tensions continue to

intensify.

The Israeli shekel fell almost 1.4%, and long-dated

dollar bonds for Israel, Egypt and Pakistan slipped.

TWO-WAY PULL FOR BONDS

U.S. Treasuries initially benefited from the rush for safer

assets, but as the day wore on, investors' focus turned to the

inflationary impact of higher oil prices.

U.S. 10-year Treasury yields were last up 6.7 basis points

at 4.42%, having touched a one-month low of 4.31%. Bond yields

move inversely to prices.

"This is a flight-to-safety event. But markets are

struggling a bit, and in the fixed income space you have an

oil-price shock that is inflationary, and so you should see

markets expecting an even more hawkish Fed," said James

Rossiter, head of global macro strategy at TD Securities.

"On the other hand, you have the flight to safety, which

should push bond yields lower."

Germany's 10-year bond yield touched its lowest level since

early March at around 2.42%, before also inching

higher.

Some traders were attracted to the dollar as a haven, with the

dollar index up 0.35% to 98.03, retracing most of

Thursday's sizeable decline.

The Swiss franc briefly touched its strongest

level against the dollar since April 21, before trading 0.12%

lower at around 0.811 per dollar.

Another safe haven, the Japanese yen, fell 0.34%

to 143.95 per dollar, giving up earlier gains of 0.3%.

The euro was down 0.2% at $1.15, after rising on

Thursday to the highest since October 2021.