Israel attack on Iran triggers Middle East market falls

By Federico Maccioni and Marc Jones

DUBAI, June 13 (Reuters) - The Israeli shekel suffered widespread selling on Friday along with some government bonds and equity markets across the Middle East after Israel launched missile strikes against Iran.

Israel said it had targeted nuclear facilities, ballistic missile factories and military commanders as part of what would be a prolonged operation to prevent Tehran from building nuclear weapons.

Iran promised a harsh response to attacks that killed the heads of both its armed forces and the Revolutionary Guards, and Israel said it was trying to intercept about 100 drones launched in retaliation towards Israeli territory.

Israel's shekel was down 1.5% against the dollar having tumbled as much as 3.5% at one point. It was also on track for its biggest weekly drop since last July following days of escalating rhetoric.

The country's longer-dated government bonds continued to slide alongside others in the region from Egypt and Jordan. The cost of insuring the debt against default using so-called credit default swaps also rose again.

One buy-side analyst in London who requested anonymity, added it could be far more significant than the situation in Gaza, where Israel is fighting a war against the Palestinian militant group Hamas.

"There is a lot more room for widening (of sovereign bond and credit spreads) if this escalates," he said.

"The only silver lining in these attacks for the wider region is the absence of any nuclear radiation. Until there is a deal with Iran, it is not clear what prevents further escalation," said Hasnain Malik head of emerging and frontier markets equity strategy at Tellimer.

"That creates an overhang for investor appetite, which the oil price bump does not offset," Malik said.

OIL PRICES SURGE

Oil prices surged more than 9%, hitting their highest in almost five months and the largest intraday moves for both Brent crude futures and U.S. West Texas Intermediate crude contracts since 2022.

"If we see oil prices moving towards $80 and above then that becomes more of an issue for global central banks," said Chris Scicluna, head of economic research at Daiwa Capital Markets, agreeing with other analysts that it would also strain oil importers.

Dubai's main share index .DDFMGI closed down 1.9%, while Abu Dhabi's main index .FTFADGI ended 1.3% lower having recouped bigger intraday losses.

Air Arabia AIRA.DU shares in Dubai closed down 3.2%, as airlines cleared out of the airspace over Israel, Iran, Iraq and Jordan after the Israeli strikes.

Real estate companies were impacted, with developers Emaar Properties EMAR.DU and Union Properties UPRO.DU closing down 3.5% and 6.9%, respectively, while Abu Dhabi's Aldar ALDAR.AD shares ended the session down 3.9%.

Insurers were also hit and National General Insurance NGIN.DU, Dubai Insurance DINC.DU and Sukoon Takaful SUKOONT.DU closed between 8-10% lower.

Other bourses across the Gulf, including Saudi Arabia and Qatar, were closed on Friday and were set to hold their first trading session after the attacks on Sunday.

"Equity markets, especially in the region, are very sensitive to geopolitical events as individual investors are a key player in it," said Mohammed Ali Yasin, the chief executive of Ghaf Benefits at asset manager Lunate in Abu Dhabi.

Investors also headed towards safe-haven assets, with gold prices climbing to their highest levels in nearly two months.

"We do expect market volatility in the Middle East to continue as political instability remains the key factor affecting investors' sentiments," said Tariq Kakish, deputy CEO at FH Capital in Abu Dhabi.

He added, however, that previous confrontations between Iran and Israel had always had a short impact on markets.

"We believe this will have a similar pattern," he said.