Stock markets slide further on fears that Middle East conflict will escalate

The US Federal Reserve said that the war could reduce economic activity and boost inflation worldwide

In Tokyo, an electronic stock board shows Japan's Nikkei 225 index, which ended the week lower in line with its regional and global peers counterparts. AP

Global stock markets retreated on Friday on fears that the conflict between Israel and Hamas will escalate.

The US Federal Reserve warned that the war in the Middle East, alongside the continuing conflict between Ukraine and Russia, “could reduce economic activity and boost inflation worldwide”.

The war has added to other concerns facing investors, which include high interest rates and elevated inflation, which the Fed and other central banks are trying to contain.

Wall Street posted its worst week in a month, with the S&P 500 shedding 1.3 per cent, the Dow Jones Industrial Average retreating 0.9 per cent and the tech-heavy Nasdaq Composite tumbling 1.5 per cent.

For the week, the indices lost 2.4 per cent, 1.6 per cent and 3.2 per cent, respectively. Year-to-date, the S&P 500 and Nasdaq are still up 10 per cent and 24.1 per cent, respectively, while the Dow has inched down 0.1 per cent.

The S&P 500, however, is still poised to post a 14 per cent gain in 2023, a sign of an impending big stock market rally and the US economy's resilience, despite the conflicts, Craig Johnson, managing director of investment banking company Piper Sandler, told Bloomberg.

In Europe, London's FTSE 100 closed 1.3 per cent lower, with declines led by mining and financial stocks, as investors were also concerned about the conflict in the Middle East.

Elsewhere in Europe, Frankfurt's DAX shed 1.6 per cent, while Paris' CAC 40 dropped 1.5 per cent.

Earlier in Asia, Tokyo's Nikkei 225 declined 0.5 per cent, while Hong Kong's Hang Seng Index and the Shanghai Composite both retreated 0.7 per cent.

In commodities, oil prices reversed earlier gains to settle lower on Friday, but still notched their second weekly increase in a row amid concerns that the Israel-Gaza war may escalate into a regional conflict that could disrupt crude oil supplies.

Brent fell 0.24 per cent, or $0.22, to close at $92.16 a barrel, while West Texas Intermediate shed 0.69 per cent, or $0.62, to settle at $88.75 a barrel. Compared to last Friday's close, Brent was up 1.4 per cent, while WTI rose 2.8 per cent.

Gold, meanwhile, extended gains at the close on Friday and posted a second straight weekly rise as the conflict in the Middle East raised its safe haven appeal.

Spot gold rose 0.7 per cent, or $13.90, to $1,994.40 an ounce. The precious metal rose to its highest level since May earlier in Friday's trading session.