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Wary investors move to "risk off" mode as geopolitical

tension

mounts

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Crude oil prices spike higher on outbreak of hostilities

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US VIX volatility measure at highest point in 3 weeks

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By Saqib Iqbal Ahmed and Suzanne McGee

NEW YORK, June 14 (Reuters) - Dual risks kept investors

on edge ahead of markets reopening late on Sunday, from

heightened prospects of a broad Middle East war to U.S.-wide

protests against U.S. President Donald Trump that threatened

more domestic chaos.

Israel launched a barrage of strikes across Iran on Friday

and Saturday, saying it had attacked nuclear facilities and

missile factories and killed a swathe of military commanders in

what could be a prolonged operation to prevent Tehran building

an atomic weapon.

Iran launched retaliatory airstrikes at Israel on Friday

night, with explosions heard in Jerusalem and Tel Aviv, the

country's two biggest cities.

On Saturday Prime Minister Benjamin Netanyahu said Israeli

strikes would intensify, while Tehran called off nuclear talks

that Washington had held out as the only way to halt the

bombing.

Israel on Saturday also appeared to have

hit Iran's oil and gas industry

for the first time, with Iranian state media reporting a

blaze at a gas field.

The strikes knocked risky assets on Friday, including

stocks, lifted oil prices and prompted a rush into safe havens

such as gold and the dollar.

Meanwhile, protests, organized by the "No Kings" coalition

to oppose Trump's policies, were another potential damper on

risk sentiment. Hours before those protests began on Saturday, a

gunman posing as a police officer opened fire on two Minnesota

politicians and their spouses, killing Democratic state

assemblywoman Melissa Hortman and her husband.

All three major U.S. stock indexes finished in the red on

Friday, with the S&P 500 dropping 1.14%. Oil and

gold prices soaring. The dollar rose.

Israel and Iran are "not shadowboxing any more," said Matt

Gertken, chief geopolitical analyst at BCA Research. "It's an

extensive and ongoing attack."

"At some point actions by one or the other side will take

oil supply off the market" and that could trigger a surge in

risk aversion by investors, he added.

Any damage to sentiment and the willingness to take risks

could curb near-term gains in the S&P 500, which appears to have

stalled after rallying from its early April trade war-induced

market swoon. The S&P 500 is about 20% above its April low, but

has barely moved over the last four weeks.

"The overall risk profile from the geopolitical situation is

still too high for us to be willing to rush back into the

market," said Alex Morris, chief investment officer of F/m

Investments in Washington.

U.S. stock futures are set to resume trading at 6 p.m. (2200

GMT) on Sunday.

With risky assets sinking, investors' expectations for

near-term stock market gyrations jumped.

The Cboe Volatility Index rose 2.8 points to finish

at 20.82 on Friday, its highest close in three weeks.

The rise in the VIX, often dubbed the Wall Street 'fear

gauge,' and volatility futures were "classic signs of increased

risk aversion from equity market participants," said Michael

Thompson, co-portfolio manager at boutique investment firm

Little Harbor Advisors.

Thompson said he would be watching near-term volatility

futures prices for any rise toward or above the level for

futures set to expire months from now.

"This would indicate to us that near-term hedging is

warranted," he said.

The mix of domestic and global tensions is a recipe for more

uncertainty and unease across most markets, BCA's Gertken said.

"Major social unrest does typically push up volatility

somewhat, and adding the Middle Eastern crisis to the mix means

it's time to be wary."