Jordan's King Abdullah II warned the Middle East was 'at the brink of falling into the abyss'
Jordan's King Abdullah II warned the Middle East was 'at the brink of falling into the abyss' AFP News

Oil prices rallied and global stocks fell Wednesday on fears that the Israel-Hamas war could spill over into a regional conflict, after a strike at a Gaza hospital dealt a blow to President Joe Biden's diplomatic drive.

Crude futures briefly vaulted three percent higher as fears grew over broadening unrest that could destabilize the crude-rich Middle East, with some analysts predicting a possible return to $100 a barrel oil.

Gold hit the highest level in over two months as investors sought the safe haven investment, with the dollar also picking up as investors sought refuge.

"Last night's explosion at a Gaza hospital, which killed hundreds, has raised the stakes of the conflict and, according to some analysts, reduced the chances of a negotiated solution," said ActivTrades analyst Ricardo Evangelista.

He estimated there was now a higher probability that other countries in the region, such as Iran, could get involved.

"This scenario would almost certainly affect the global oil supply and could drive the price of the barrel to levels above the $100 mark," he added.

World stock markets enjoyed a healthy run Tuesday on optimism the crisis could be contained even as Israeli Prime Minister Benjamin Netanyahu prepared for a ground offensive into Gaza.

Biden visited Israel Wednesday and met with Netanyahu and had been due to travel to Jordan for a meeting with Jordanian King Abdullah II, Palestinian leader Mahmud Abbas and Egyptian President Abdel Fattah al-Sisi on finding possible ways to de-escalate the conflict.

But news that over 400 people had been killed in the rocket strike on the hospital, according to Gaza's health ministry, saw Arab leaders cancel the summit in Amman and fanned concerns of a regional conflagration.

Gaza authorities blamed Israel for the hospital explosion, but Israel insists it was caused by a rocket misfired by Hamas ally Islamic Jihad.

Biden backed Israel's insistence that it did not carry out the strike.

"Whoever turns out to be responsible the facts no longer matter given that most people have already made up their minds," said Michael Hewson at CMC Markets, adding that this sent gold and oil prices up.

European equity markets fell across the board and London was dented by news of stubbornly high UK inflation.

Wall Street's main indices ended lower, with the Dow down 1.0 percent and the Nasdaq falling 1.6 percent.

"I think the stock sell-off mainly reflects the treasuries sell-off," Karl Haeling from LBBW told AFP.

The yield on the popular 10-year US Treasury rose above 4.9 percent for the first time since 2007, as traders prepared for the likelihood of interest rates remaining higher for longer.

Asian markets mostly dropped, with Hong Kong, Shanghai, Singapore, Mumbai, Jakarta, Taipei and Manila all down.

Sydney, Seoul, Wellington and Bangkok edged up. Tokyo was flat.

Forecast-busting Chinese data provided some optimism, with its 4.9 percent third-quarter economic growth much better than analyst estimates.

This lifted hopes that the world's number-two economy was seeing some stabilization after a difficult year.

The figures were helped by a healthy retail sales jump, suggesting consumers are regaining confidence, though officials continue to face calls for more stimulus to kickstart the economy.

Brent North Sea crude: UP 1.8 percent at $91.50 per barrel

West Texas Intermediate: UP 1.9 percent at $88.32 per barrel

New York - Dow: DOWN 1.0 percent at 33,665.08 points (close)

New York - S&P 500: DOWN 1.3 percent at 4,314.60 (close)

New York - Nasdaq: DOWN 1.6 percent at 13,314.30 (close)

London - FTSE 100: DOWN 1.1 percent at 7,588.00 (close)

Frankfurt - DAX: DOWN 1.0 percent at 15,094.91 (close)

Paris - CAC 40: DOWN 0.9 percent at 6,965.99 (close)

EURO STOXX 50: DOWN 1.1 percent at 4,105.86 (close)

Tokyo - Nikkei 225: FLAT at 32,042.25 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 17,732.52 (close)

Shanghai - Composite: DOWN 0.8 percent at 3,058.71 (close)

Euro/dollar: DOWN at $1.0540 from $1.0579 on Tuesday

Pound/dollar: DOWN at $1.2141 from $1.2182