Updates with closing US market levels
Nasdaq confirms correction, down more than 10% from recent high
Investors wary about escalation of Middle East war
Concerns about energy price shocks grow
By Caroline Valetkevitch and Marc Jones
NEW YORK/LONDON, March 26 (Reuters) - Stock indexes fell sharply on Thursday, with the Nasdaq dropping more than 2% to confirm a correction, and Brent oil jumped to more than $105 a barrel as hopes diminished for a quick resolution to the nearly one-month-old Middle East war.
U.S. President Donald Trump said Iran must make a deal or face a continued onslaught, while a senior Iranian official told Reuters on Thursday that a U.S. proposal for ending the fighting is "one-sided and unfair."
Global debt markets also sold off, pushing yields higher, while safe-haven buying boosted the U.S. dollar.
On Wall Street, the Nasdaq Composite dropped 2.4%, leaving the tech-heavy index down nearly 11% from its record-high close on October 29 and confirming it has been in a correction - typically defined as a fall of 10% to 20% - since then. The day also marked the biggest one-day decline for the Nasdaq and the S&P 500 since January 20.
Stock futures trimmed losses after the bell as Trump said he was pausing attacks on Iran's energy plants for 10 days until April 6 at the Iranian government's request.
“This war has really been punishing investor psyches," said Ryan Detrick, chief market strategist at Carson Group. The move in the Nasdaq "is further confirmation that the weakness we've been seeing across the board continues."
Prospects of a prolonged war in the Middle East fanned worries about energy supply disruptions. Oil and European natural gas rose, with Brent futures LCOc1 settling at $108.01 a barrel, up $5.79. U.S. crude CLc1> settled at $94.48.
The war, triggered by U.S.–Israeli strikes on Iran, has rattled global markets and effectively shut the Strait of Hormuz, a conduit for a fifth of global oil and liquefied natural gas flows.
"Unfortunately, we're in a market that's being driven by oil prices. The rhetoric back and forth is continuing, and until talks begin, the market is going to be subject to the price of oil," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
The Dow Jones Industrial Average .DJI fell 469.38 points, or 1.01%, to 45,960.11, the S&P 500 .SPX fell 114.74 points, or 1.74%, to 6,477.16 and the Nasdaq Composite .IXIC fell 521.74 points, or 2.38%, to 21,408.08.
MSCI's gauge of stocks across the globe .MIWD00000PUS fell 15.90 points, or 1.60%, to 979.56.The pan-European STOXX 600 .STOXX index fell 1.13%.
The Philippines held an unscheduled central bank meeting due to the turmoil, while Germany's central bank head said a European Central Bank rate hike next month was "an option." Germany's two-year bond yield DE2YT=RR, sensitive to ECB rate expectations, rose. Bond yields move inversely to prices.
Worries about persistent inflation also drove U.S. Treasury yields higher. The benchmark U.S. 10-year Treasury yield US10YT=RR was last up 7.8 basis points at 4.404%. The two-year note's yield US2YT=RR was last up 8.6 bps at 3.967%.
Earlier, the yield on Japan's two-year government bond JP2YT=RR hit its highest level in 30 years at 1.33%, as traders cemented bets on another Bank of Japan rate hike as early as next month. JP/
In currencies, the U.S. dollar rose against most major currencies, reviving its safe-haven appeal.
Fears of a 2022-style inflation shock have seen traders fully price out any chance of a Federal Reserve rate cut this year, further supporting the dollar.
In afternoon trading, the dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.3% to 99.92, with the euro EUR= down 0.24% at $1.1529. Against the Japanese yen JPY=, the dollar strengthened 0.19% to 159.75.
Gold fell. U.S. gold futures GCcv1 for April delivery settled 3.9% lower at $4,376.30.
(Reporting by Caroline Valetkevitch in New York and Marc Jones in London; additional reporting by Stephen Culp in New York; editing by Mark Potter, Will Dunham, Arun Koyyur and Lincoln Feast)
((caroline.valetkevitch@thomsonreuters.com))
