LONDON/SYDNEY, March 23 (Reuters) - Global shares slid on Monday while U.S. bond yields hit eight-month peaks as the U.S. and Iran traded escalating threats and Israel planned for "weeks" more fighting, sending oil prices on another roller-coaster ride.

Iran on Sunday said it would strike the energy and water systems of its Gulf neighbours if U.S. President Donald Trump followed through with a threat to hit Iran's electricity grid within 48 hours, extinguishing any hope of an early end to the war, now in its fourth week.

Trump warned Iran had two days to fully open the vital Strait of Hormuz, which is effectively closed for most vessels with little prospect of naval protection for shipping, with a deadline culminating at 2344 GMT on Monday.

MSCI's broadest index of global stocks ticked 0.6% lower on Monday, adding to over 7.4% of losses for the month.

Japan's benchmark Nikkei fell 3.5% and nerves finally hit China, where blue chips headed for their heaviest beating since U.S. tariffs hit markets last year.

European shares opened lower, falling to a four-month low, led by the defense sector, as a spike in crude prices prompted investors to factor in potential inflation pressures with the Middle East conflict intensifying. The pan-European stocks index was last down 1.75%.

S&P 500 futures slipped 0.6%, while Nasdaq futures lost 0.7%.

Oil prices were again choppy with Brent last up 0.8% at $113.20 a barrel, more than 55% higher for the month so far. U.S. crude gained 0.9% to $99.15. [O/R]

Near-term supplies have been aided by the U.S. allowing Iranian and Russian oil to be sold from tankers, but the growing risk of longer-term shortages was lifting futures down the curve. September Brent, for instance, was up $2 at $93.90, suggesting high prices were here to stay.

"Far from providing reassurance that the conflict could be resolved, Trump's ultimatum to Iran over the Strait of Hormuz has sent another jolt of worry through markets," said Susannah Streeter, chief investment strategist at Wealth Club, a British brokerage.

Analysts at HSBC noted Singapore jet fuel was up 175% this year to a multi-decade high, while Asian liquefied natural gas has climbed 130%. Bunker fuel used in shipping has blown out, raising the cost of transporting goods, while surging fertiliser prices will make food more expensive.

International Energy Agency boss Fatih Birol warned the crisis was "very severe" and worse than the two oil shocks of the 1970s put together.

SAY GOODBYE TO RATE CUTS 

The inflationary pulse from energy has seen markets abandon hopes for further monetary easing globally and swing to pricing in rate hikes across most developed nations.

Futures have wiped out expectations for 50 basis points of easing from the Federal Reserve this year, with even a small chance the next move could be up.

The hawkish sea change has hammered bonds and sent yields climbing, adding to borrowing costs for many governments already struggling with deficits and debt.

The prospect of higher costs and softer consumer demand has clouded the outlook for corporate profits, while the jump in yields made equity valuations look ever more stretched.  

The energy shock, combined with pressure on fiscal budgets from higher defence spending, saw double-digit increases in bond yields globally last week.

Ten-year U.S. Treasury yields hit a nine-month high of 4.4274%, having climbed a steep 44 basis points since the war began.

The heightened volatility in markets has tended to benefit the U.S. dollar as a store of liquidity. The U.S. is also a net energy exporter, giving it a relative advantage over Europe and much of Asia, which are net importers.

The euro was a shade lower at $1.1514, but some way from major supports at $1.1409 and $1.1392.

The dollar was 0.1% firmer versus the yen at 159.45, just off a 20-month top of 159.88, with investors wary in case a break of 160 triggers intervention from Japan.

In commodity markets, gold slipped 4.35% to $4,300 an ounce, having lost ground as investors wager on higher interest rates globally. [GOL/]