(Sharecast News) - Sharp losses were seen across Asia-Pacific bourses on Friday amid a surge in oil prices, as investors reacted to news that Israel had carried out a military strike on Iran targeting nuclear facilities.
The escalation raised fears of broader conflict in the region, prompting a risk-off shift across global markets.
"Global equity markets rapidly repriced lower overnight as investors turned to safe-haven assets after Israel launched strikes on Iran's nuclear facilities, significantly escalating Middle East tensions," said TickMill market strategy partner Patrick Munnelly.
"Crude oil prices soared by 9%, marking their steepest increase in over three years.
"S&P 500 index futures slid 1.6%, while an Asian equities index dropped 1.1%."
Munnelly said Israel's overnight strikes targeted Iran's nuclear programme and its senior leadership, which Israeli officials suggested could extend for several days.
"Markets have proved adept at absorbing geopolitical risks recently, and historically, Middle East wars have only had a limited impact on oil prices, beyond the initial knee-jerk response.
"Oil futures initially surged by more than 12% but have since retreated amid fears that Israel's attack on Iran could trigger severe and lasting repercussions.
"The energy sector bore the brunt of market reactions, given Iran's crucial role as a key oil supplier to China and India."
Markets fall across the region after Israeli strikes on Iran
In Japan, the Nikkei 225 fell 0.89% to 37,834.25, weighed by declines in major technology names.
LY Corporation dropped 5.28%, Tokyo Electron slid 4.80%, and Dainippon Screen Manufacturing lost 4.77%.
The broader Topix index declined 0.95% to 2,756.47.
Mainland Chinese markets also weakened - the Shanghai Composite slipped 0.75% to 3,377.00, led by losses in industrials, with Shanghai Vohringer Wood Product and Guangdong Dcenti Auto-Parts Stock both falling 9.98%, and Suzhou Longjie Special Fiber Co down 9.97%.
The Shenzhen Component shed 1.10% to 10,122.11.
Hong Kong's Hang Seng Index closed 0.59% lower at 23,892.56.
Sunny Optical Technology Group dropped 5.01%, Sands China declined 3.74%, and Alibaba Health Information Technology fell 3.16%.
In South Korea, the Kospi 100 lost 0.77% to close at 2,893.93.
Hanjinkal tumbled 9.42%, LF Co declined 6.06%, and EcoPro Materials slid 5.74%.
Australia's S&P/ASX 200 edged down 0.21% to 8,547.40, with Polynovo down 6.72%, Credit Corp Group off 5.89%, and Flight Centre losing 5.11%.
Across the Tasman Sea, New Zealand's S&P/NZX 50 dropped 0.76% to 12,552.87, as Synlait Milk fell 4.29%, Restaurant Brands New Zealand lost 4.07%, and Vista Group International slipped 3.24%.
Oil prices spiked amid fears of regional disruption - Brent crude futures were last up 6.79% on ICE at $74.07 per barrel, while the NYMEX quote for West Texas Intermediate gained 6.89% to $72.73.
In currency markets, the dollar was last up 0.35% on the yen to trade at JPY 143.98, while it advanced 0.78% against the Aussie to AUD 1.5426, and climbed 0.94% on the Kiwi, changing hands at NZD 1.6630.
NZ manufacturing sector slips into contraction, BoJ set to keep rates on hold
In economic news, New Zealand's manufacturing sector slipped back into contraction in May, as the BusinessNZ performance of manufacturing index fell to 47.5 from 53.3 in April.
The reading marked a return to negative territory after four months of modest expansion and is well below the long-term average of 52.5 since the survey began.
Catherine Beard, director of advocacy at BusinessNZ, described the result as "disappointing", noting that the sector had shown signs of recovery earlier in the year.
Meanwhile, the Bank of Japan was expected to keep interest rates unchanged at its upcoming two-day policy meeting starting on Monday, according to MFS Investment Management.
Despite ongoing wage and price increases, the central bank was likely to maintain a neutral stance due to heightened global uncertainty, including the impact of ongoing US trade negotiations.
Carl Ang, fixed income research analyst at MFS, said in a note that stagflation-like risks had intensified since US president Donald Trump's 'Liberation Day', making a rate hold the most probable outcome.
He added that the earliest likely window for further tightening would be the first quarter of next year.
While a surprise rate hike could not be entirely ruled out - particularly given expectations that the yen may strengthen from its historically weak levels - Ang said such a move remains a remote possibility.
Reporting by Josh White for Sharecast.com.
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