UK stocks dip as Iran conflict sparks global selloff

March 2 (Reuters) - UK stock indexes were swept up in a global selloff on Monday, as an escalating military conflict in the Middle East fuelled a jump in oil prices and drove investors towards safe-haven assets.

Oil prices LCOc1, CLc1 surged almost 7% after retaliatory Iranian attacks disrupted shipping in the crucial Strait of Hormuz following the weekend's bombing by Israel and the United States that killed Iranian Supreme Leader Ayatollah Ali Khamenei. O/R

While British oil majors such as Shell SHEL.L rose 1.9% and defence companies like BAE Systems BAES.L climbed 6%, other equity sectors, particularly banks and travel companies, came under heavy selling pressure as investors braced for travel and economic disruptions.

The blue-chip FTSE 100 .FTSE closed down 1.2%, having touched a record high in the prior session, while the domestically oriented FTSE 250 index .FTMC fell 1.4%.

"If the issues persist, then the market will start to worry about new inflationary pressures and that could lower expectations for near-term interest rate cuts," said Dan Coatsworth, head of markets at AJ Bell.

Banks including HSBC HSBA.L, Barclays BARC.L and Lloyds Banking Group LLOY.L fell between 2.5% and 4.2%, as surging oil prices fuelled concerns about a resurgence of inflation and a potential dent to the economy.

British government bond yields rose as investors trimmed their expectations for Bank of England interest rate cuts. Traders were pricing in a 52% chance that the BoE will cut rates later this month, down from about 78% last week.

BoE policymaker Alan Taylor said that it was too soon to tell how the conflict in the Middle East would impact Britain's sluggish economy.

British Airways operator IAG ICAG.L fell 5.5% after the airline said on Saturday it had cancelled flights to Tel Aviv and Bahrain until March 3. The broader FTSE 350 travel & leisure index .FTNMX405010 fell 4.3%, with hotels and cruise operators among the major decliners.