World shares drop, oil jumps as Middle East unrest deepens

By Chibuike Oguh

NEW YORK, June 3 (Reuters) - Global stocks fell and oil prices climbed on Wednesday as hopes for a swift end to the Iran war faded, with renewed hostilities dampening risk appetite.

Wall Street's three main indexes pulled back from recent record highs, dragged by technology and financial stocks, while energy shares tracked the rise in crude.

The Dow Jones Industrial Average fell 1.21%, the S&P 500 lost 0.74%, and the Nasdaq Composite fell 0.89%.

The pan-European STOXX 600 index dipped 0.66%. MSCI's gauge of stocks across the globe fell 0.65%.

Tensions in the Middle East escalated after Iranian attacks on Kuwait damaged its airport and injured dozens of people, while U.S. forces struck targets near the Strait of Hormuz. Diplomatic efforts to halt the conflict showed little progress.

"The broad market and the tech sector have led this strong, strong rally for the past several sessions, and today's taking a breather," said Wasif Latif, chief investment officer at Sarmaya Partners. "The headline coming out of the Middle East with the Iran war continuing to escalate, de-escalate, escalate, and then de-escalate again. That's the reason for the market selloff today."

Oil prices neared $100 a barrel, with Brent crude settling up 1.89% at $97.81.

AI HALO

Investor enthusiasm over AI continued to support equities.

In Asia, stock indexes climbed to record highs in Japan and Taiwan.

Shares in Marvell Technology rose 3.73%, extending gains from a record high on Tuesday after Nvidia boss Jensen Huang called the chipmaker the next trillion-dollar company.

SpaceX, which is largely focused on AI, plans to raise $75 billion in a blockbuster initial public offering, according to a source familiar with the matter.    

"Our view continues to be that this strong run-up in semiconductors and data-center demand is a lot of pulling forward of future demand and consumption, and that's helping the economy," Latif added.

YEN INTERVENTION WORRIES

Currency markets were jittery after the dollar strengthened to the 160 yen level, a threshold that often heightens concerns about potential intervention by Japanese authorities.

The Japanese yen weakened 0.11% against the greenback to 160.05 per dollar. 

The fall in the yen prompted warnings from the finance minister on Wednesday.

The euro was down 0.27% against the greenback at $1.160.

The dollar index, which tracks the currency against its peers, rose 0.23% to 99.52.

Markets had expected rate cuts before the Iran war, but have now pretty much priced out U.S. rate increases this year.

In Europe, a rate increase next week is almost fully priced in after data showed inflation accelerated last month. Traders see roughly a 75% chance of a June hike in Japan.

U.S. 10-year Treasury yields rose 3.4 basis points to 4.489%. Data showed U.S. private payrolls increased more than expected in May. More comprehensive official jobs numbers are due on Friday.

Spot gold fell 0.99% to $4,440.06 an ounce.

(Reporting by Chibuike Oguh in New YorkEditing by Nick Zieminski, Will Dunham and Rod Nickel)