(Updates to U.S. market close)

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Israel hits Iran nuclear facilities, missiles fired back

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Crude surges on supply risks

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Dow slumps, European, Asian shares also down

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Dollar regains ground, Treasury yields spike

By Lawrence Delevingne and 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.

Early on Friday, U.S. President Donald Trump urged Iran to make

a deal over its nuclear program - the primary target of the

strikes - saying there was still time for the country to prevent

further conflict with Israel. But later in the day, Iran fired

missiles at Israel in response to the attacks; explosions were

heard over Tel Aviv and Jerusalem as sirens sounded on Friday

night across the country.

Worries that the conflict could disrupt Middle Eastern oil

and gas supplies

pu

shed prices sharply higher

. Global benchmark Brent crude futures

settled 7% higher at $74.23 a barrel, after earlier soaring

over 13%, while U.S. crude finished at $72.98 a barrel,

up 7.62%. U.S. natural gas climbed about 3% and European

gas prices jumped over 5% to their highest intraday level in 10

weeks.

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

1.4% to $3,431 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 1.8%, the S&P 500

dropped 1.1%, and the Nasdaq Composite lost 1.3%.

European shares dropped 0.9%, briefly hitting its

lowest level in three weeks, and in Asia, major bourses in

Japan, South Korea, and Hong Kong fell over 1% each.

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

President Trump's unpredictable

trade policies

.

"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.

Investors will also keep

close watch

on planned protests across U.S. cities on Saturday, amid

heightened concerns following immigration raids in Los Angeles.

TWO-WAY PULL FOR BONDS

U.S. 10-year Treasury yields rose 5.6 basis points to 4.413%, as

markets absorbed a sudden shock to commodity and stock prices,

reversing some of the declines after four days mainly in the

red.

"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."

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

dollar index up about 0.5% to 98.16, retracing most of

Thursday's sizeable decline.

The Swiss franc briefly touched its strongest

level against the dollar since April 21, before trading 0.1%

lower at around 0.811 per dollar.

Another safe haven, the Japanese yen, fell 0.34% to

about 144 per dollar, giving up earlier gains of 0.3%.

The euro was down 0.3% at $1.15, after rising on

Thursday to the highest since October 2021.

"Clearly if the conflict in the Middle East is short term in

nature, the weakness in USD will likely continue," Arun Bharath,

Chief Investment Officer at Bel Air Investment Advisors, said in

an email. If not, he added, the fundamental factors that suggest

further weakness for the dollar might be offset by a

geopolitical premium for it.