Stocks sell off, oil surges as Israel strikes Iran

(Corrects to show oil prices rose, not fell, in headline)

SINGAPORE (Reuters) -Israel said early on Friday that it struck Iran, and Iranian media said explosions were heard in Tehran as tensions mounted over U.S. efforts to win Iran's agreement to halt production of material for an atomic bomb.

Two U.S. officials who spoke on condition of anonymity said there was no U.S. assistance or involvement in the operation.

MARKET REACTION: U.S. stock futures fell more than 1%, oil prices jumped and U.S. Treasuries rose. The U.S. dollar, Japanese yen and Swiss franc rallied.

QUOTES:

MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE:

"A surge of one-way volatility to the demise of risk appetite is playing out on reports of Israel's strike on Iran, with traders pushing the yen, Swiss franc and gold higher while global index futures point lower.

"Oil prices surged 6% in minutes on supply concerns, taking its 3-day total to 12.3%. This could keep volatility elevated heading into the weekend, with traders likely wanting to hedge gap risks for next week."

JESSICA AMIR, MARKET STRATEGIST, ONLINE TRADING PLATFORM MOOMOO, SYDNEY:

“We've seen equities stalling for some time, and it just appears that this is the catalyst that will probably send equities down lower. Stocks are up 30% globally, and you've got the MSCI World Index at a record, so there's room for fat to be taken off the table.

“What's going to continue to soar higher is, obviously, the defensive sectors, so utilities, energy, and also defence (companies) themselves.

“The (Middle East) region is a huge supplier of oil and obviously there's now the thinking that some of that supply could be cut off at a time when we've got demand really starting to pick up.”

HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO:

"The situation in the Middle East has further deteriorated, and the heightened geopolitical risks are being strongly felt in the FX market. With the rise in risk-off sentiment, the Japanese yen is likely to be bought. The USD/JPY exchange rate is seeing the 140 yen level, observed in April, as a potential support level."

TONY SYCAMORE, ANALYST, IG, SYDNEY:

"I thought Israel might give Iran the benefit of the doubt ahead of weekend talks with the U.S., but they've obviously decided to go it alone.

"While details are sparse regarding the targets, risk asset markets are not in the mood to wait and find out.

"This morning’s alarming escalation is a blow to risk sentiment and comes at a crucial time after macro and systematic funds have rebuilt long positions and investor sentiment has rebounded to bullish levels. While we await further news and a potential response from Iran, we are likely to see a further deterioration in risk sentiment as traders cut risk seeking positions ahead of the weekend."

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:

"Traders are scurrying for safety as reports of a strike on Iran cross the wires, but details on the scale and magnitude of the attack remain scarce and moves have been relatively limited thus far."

CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:

"The geopolitical escalation adds another layer of uncertainty to already fragile sentiment.

"The key question now is whether this marks a brief flare-up or the beginning of broader regional escalation. If the situation de-escalates quickly, markets may retrace some of the initial moves. But if tensions rise — particularly with any threat to oil supply routes — the risk-off mood could persist, keeping upward pressure on crude and haven assets."

(Reporting by Reuters markets teamCompiled by Vidya Ranganathan)