European stocks came under pressure on Monday as military clashes in the Middle East sparked a rush to safe-haven assets such as bonds and gold, while also boosting oil prices by about 3%.
The pan-European STOXX 600 index (.STOXX) dipped 0.1%, with retailers (.SXRP) and travel & leisure (.SXTP) stocks leading sectoral losses.
Global investors turned risk averse as military clashes between Israel and the Palestinian Islamist group Hamas deepened political uncertainty across the Middle East and raised oil supply concerns.
The energy index (.SXEP) jumped 2.4% as oil prices , rallied 3% to more than $85 a barrel, keeping the broader market under pressure on concerns about elevated inflation.
"The wider risk is that a sustained increase in oil prices would act as a renewed inflationary pressure and further underpin the higher-rates-for-longer message which investors in the equity and bond markets seem to be belatedly coming to terms with," said Russ Mould, investment director at AJ Bell.
Shares of defence companies such as Sweden's Saab (SAABb.ST), Italy's Leonardo (LDOF.MI) and Germany's Rheinmetall (RHMG.DE) surged between 6.1% and 9.5% on the prospect of a prolonged military conflict in the region.
Airline stocks, including British-Airways owner IAG (ICAG.L), Air France KLM (AIRF.PA) and Lufthansa (LHAG.DE), fell between 2.5% and 3.4% as several international air carriers suspended flight services with Tel Aviv and amid higher fuel cost concerns.
"A risk-off mood could well prevail for the time being, at least until the scope of the conflict becomes clearer," said Chris Beauchamp, chief market analyst at IG.
The benchmark index marked its third consecutive week of losses on Friday as U.S. government bond yields surged on expectations that interest rates will remain elevated for a prolonged period amid signs of resilience in the world's largest economy.
