European shares tumble as Israel-Iran conflict escalates

By Purvi Agarwal and Ragini Mathur

(Reuters) -European shares closed lower on Friday as Israel's wide-scale strike against Iran triggered a broad market selloff, with investors rushing to safe-haven assets amid an already uncertain trade environment.

The pan-European STOXX 600 index fell 0.9%, briefly hitting its lowest level in three-weeks. The index also marked its fifth consecutive declining session and longest losing streak since September 2024.

Israel launched a barrage of strikes across Iran, saying it had attacked nuclear facilities and missile factories. The news sent global risk assets lower and investors moved into traditional safe havens like the dollar and gold.

Though Washington said it had no part in the attack, U.S. President Donald Trump, Israel's main ally, suggested that Iran had brought the attack on itself by resisting a U.S. ultimatum in talks to restrict its nuclear programme.

Most regional stock bourses finished in the red, with Germany's DAX ending 1.1% lower after data showed German inflation eased to 2.1% in May, confirming preliminary data.

"If this is over quickly, we'll see a fairly quick recovery and the markets basically are discounting the possibility that this drags out," said Patrick Armstrong, chief investment officer at Plurimi Wealth.

"Our view is that it probably will be very short lived because Iran isn't in a position to respond meaningfully, given the power dynamics between the two countries".

Most STOXX sub-sectors clocked losses, with auto stocks leading declines, down 2.2%.

Travel and leisure also dropped 2% - with airline operators ICAG, Lufthansa and Ryanair among the biggest laggards as many airlines cleared out of the airspace over Israel, Iran, Iraq and Jordan and crude oil prices surged.

Energy stocks advanced 0.6% as crude oil prices jumped close to 6% on worries about a disruption in Middle East oil supplies.

Shipping groups Maersk advanced 4.2% and Hapag-Lloyd gained almost 1%, respectively, as analysts flagged upside risks to freight rates amid the supply disruptions.

Defence companies also jumped, with Germany's Rheinmetall up 2.7% and UK's BAE Systems adding 2.9%.

A measure of European volatility also shot up to its highest level since May 26.

The benchmark index STOXX 600 posted a weekly decline, as investors were unimpressed by the outcome of U.S.-China talks earlier this week, and had doubts over an EU trade deal with the U.S. before Trump's July 8 tariff deadline.

(Reporting by Purvi Agarwal, Ragini Mathur and Shashwat Chauhan in Bengaluru; Editing by Sonia Cheema and Mrigank Dhaniwala)