Stock markets worldwide were knocked lower and oil prices jumped yesterday after Saudi Arabia and its allies carried out air strikes in Yemen that fuelled worries Middle East energy shipments may be put at risk, although Wall Street later recovered.
Brent oil was last at $59.32 a barrel, up five per cent but off a session high of $59.78. US crude was up 4.5 per cent at $51.41 a barrel after reaching $52.48.
Key stock indexes on Wall Street, where prices fell this week on fears US economic growth may be slowing, were down as much as one per cent before trimming losses to be just below flat.
The MSCI world equity index, however, which tracks shares in 45 countries, was last off 0.7 per cent.
'The air strikes in Yemen have really created a risk-off mood,' said Rabobank strategist Philip Marey.
In currency markets, the dollar fell against traditional safe havens the Swiss franc and the yen after warplanes from Saudi Arabia and other Arab countries struck Shi'ite Muslim rebels fighting to oust Yemen's president.
The dollar later recovered against the franc and was last up 0.3 per cent at 0.9619 franc. The dollar was last at 119.28 yen, off 0.18 per cent.
The dollar was down earlier against the euro but recovered in New York trading on the view central bank policy was more favourable for the US currency.
The euro was off 0.65 per cent at $1.0895.
Iran denounced the attacks as the Saudi military also targeted Iran-backed Houthi rebels besieging the southern Yemen city of Aden.
Arab producers ship oil via the narrow Gulf of Aden and the prospect of bigger Middle East conflict sparked fears of a disruption of crude supplies.
A vertiginous slide in oil prices from more than $115 a barrel last June to a low of $45 in January has been a major driver of financial markets in the past year and a key factor driving global interest rates down and stock markets up.
The pan-European FTSEurofirst 300 index closed down 0.8 per cent. In Germany, a major industrial economy heavily dependent on oil imports, the DAX index ended off 0.2 per cent.
Wall Street's Dow Jones industrial average was last down 12.42 points, or 0.07 per cent, to 17,706.12, the S&P 500 lost 0.13 points, or 0.01 per cent, to 2,060.92 and the Nasdaq Composite dropped 2.85 points, or 0.06 per cent, to 4,873.68.
Gold rose, climbing roughly one per cent to $1,206 an ounce, supported by the weak dollar and Middle East tensions.
Prices of US Treasuries, often a safe haven for fretful investors, dipped yesterday as the government held a sale of $29 billion of Treasury notes.
The benchmark 10-year note was off 20/32 and yielding 1.99 per cent.