US stock futures slumped along with Asian equities and oil prices surged after Iran started an attack on military facilities in Iraq hosting American troops, escalating tensions in the Middle East. Treasuries and the yen rose as haven assets caught a bid.

Futures on the S&P 500 Index dropped more than 1.5 per cent and benchmark US Treasury yields tumbled 10 basis points. Iran fired several rockets at two joint US-Iraqi bases early Wednesday morning in retaliation for the killing of a top Iranian military leader by the US Japanese shares headed for the biggest slide since March, with equities also lower in Sydney and Seoul. Gold advanced.

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"Markets will likely remain nervous," Mitul Kotecha, a strategist at TD Securities, said. "Much now depends on the US reaction and whether there is further escalation."

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Caution is returning to markets after a bumper 2019 for a range of asset classes amid signs hostilities are moving on to the next stage following the airstrike that killed General Qassem Soleimani last week. Meantime, investors continue to weigh developments on the trade front with the first phase of the US-China trade deal expected by many to be signed on Jan. 15.

Jason Bordoff, a former advisor to President Barack Obama and a founding director of Center on Global Energy Policy and Columbia University told the Financial Times it was still too early to know the severity of the response from Iran.

"Given the critical importance of Irak to oil supply, markets will react negatively to increased geopolitical risk, sending oil prices still higher," he said.

These are moves in major markets:

Stocks

• Futures on the S&P 500 Index slid 1.6 per cent as of 9:37 a.m. in Tokyo. The underlying gauge fell 0.3 per cent on Tuesday.
• Japan's Topix index lost 2.2 per cent.
• Australia's S&P/ASX 200 Index was down 0.9 per cent.
• South Korea's Kospi index fell 1.5 per cent.

Currencies

• The yen rose 0.7 per cent to 107.71 per dollar.
• The offshore yuan traded at 6.9600 per dollar, down 0.3 per cent.
• The Bloomberg Dollar Spot Index dipped 0.1 per cent.
• The euro bought $1.1164, up 0.1 per cent.

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Bonds

• The yield on 10-year Treasuries declined 10 basis points to 1.72 per cent.
• Australia's 10-year yield fell about nine basis points to 1.13 per cent.
Commodities
• Crude oil jumped 3.7 per cent to over $70 a barrel.
• Gold rose 2 per cent to $1,605.75 an ounce.

- Bloomberg