Shanghai: Asian shares tumbled on Wednesday, while oil, safe-haven Treasury prices and gold shot higher after Iran fired rockets at US-led forces in Iraq, stoking fears of a wider conflict in the Middle East.
European equity markets were expected to open lower, with pan-region Euro Stoxx 50 futures down 0.77 per cent, German DAX futures off 0.91pc and FTSE futures 0.45pc lower.
Iran's missile attacks on the Ain Al-Asad air base and another in Erbil, Iraq, early in the day came hours after the funeral of an Iranian commander whose killing in a US drone strike has intensified tensions in the region.
Early reports of the attacks sparked a sudden rise in risk aversion on worries over how the United States would respond. Asian equities later trimmed losses, Japan's yen stabilised and US bonds tempered their rally as investors paused for breath after US President Donald Trump said in a tweet that "All is well!", and "So far, so good!".
"We are getting exaggerated moves but that's of course volatility playing. Markets simply hate uncertainty. It's an old adage but it definitely holds true in the current situation - markets can price risks but they can't price uncertainty," said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.
In his tweet late Tuesday, Trump said that an assessment of casualties and damage from the strikes was under way and that he would make a statement on Wednesday morning. A US official said the United States was not aware of any casualties from the strikes.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.72pc, having dropped more than 1pc earlier in the day. China's blue-chip CSI300 index was 1.18pc lower.
Japan's Nikkei dipped 1.57pc, paring earlier losses of more than 2pc, while Australian shares clawed back from a more-than-1pc drop to shed 0.13pc. US S&P500 e-mini stock futures, which had earlier tumbled nearly 1.7pc, were down 0.38pc.
Rob Carnell, Asia-Pacific chief economist at ING in Singapore, said possible further escalation of tensions between Iran and the United States could still provoke a prolonged negative market reaction.
"If you see US treasuries rallying a bit this morning, expect them to rally quite a bit further should there be a forceful response from the United States, which I'd imagine there would be...from a market perspective I think this one could run and run," he said.
The yield on benchmark 10-year US Treasury notes last stood at 1.7742pc, down from a US close of 1.825pc on Tuesday, but up from session lows. US 10-year Treasury futures had earlier peaked at their highest level since November, and were last up 0.29pc.
The two-year yield fell to 1.5061pc compared with a US close of 1.546pc.
The yen, which had hit its strongest point against the greenback since October in morning trade, gave up most of its gains later in the day. The US currency was last down 0.11pc against the yen at 108.30.
The euro was 0.03pc weaker, buying $1.1147 and the dollar index, which measures the greenback against six major peers, was 0.06pc lower at 96.949.
In commodity markets, global benchmark Brent crude futures shot back above $70 per barrell to their highest level since mid-September in the initial hours after Iran's strikes.
They were last up 1.08pc at $69.01 per barrel, while US crude added 0.96pc to $63.30 a barrel.
"I don’t think many investors try and anticipate global politics, especially when it involves Trump ... they are probably more inclined to price things in as they come," said Hasan Tevfik, senior research analyst at MST Marquee.
Gold also fell below a key psychological level as initial fears eased. The precious metal was 1.30pc higher on the spot market at $1,594.33 per ounce, having earlier blasted through $1,600.
On Tuesday, shares on Wall Street had pulled back amid worries over US-Iran tensions. The Dow Jones Industrial Average fell 0.42pc, the S&P 500 lost 0.28pc and the Nasdaq Composite dropped 0.03pc.
Analysts say the escalating Middle East tensions are likely to keep markets on edge.
"If it does look like we've got US casualties, then I don't think Trump is going to just stand back and take that," said Matt Simpson, a senior market analyst at Gain Capital in Singapore.
"World War III has been thrown around. I don't think we're there yet. But it does look like Iraq II."
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