Oil prices rallied and global stocks mostly fell Wednesday on fears that the Israel-Hamas conflict could spill over into a regional war 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 destabilise the crude-rich Middle East with some analysts predicting a possible return to $100 oil, while gold hit a four-week peak as investors sought the safe haven investment.
"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 is now a higher probability that other countries in the region, such as Iran, could end up involved in the dispute.
"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 had enjoyed a healthy run Tuesday on optimism the crisis could be contained even as Israeli Prime Minister Benjamin Netanyahu prepared for a ground offensive in the blockaded territory.
Biden had planned to visit Israel on Wednesday to meet with Netanyahu and then travel on 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 at least 200 people had been killed at the hospital saw the Arab leaders cancel the summit in Amman and fanned concerns of a regional conflagration, with Iran warning this week that a wider war was becoming "inevitable".
Gaza's health ministry blamed Israel for the hospital explosion, but Israel said it was caused by a rocket misfired by Hamas ally Islamic Jihad.
There was an increase in fighting between Israeli troops and Tehran-backed Hezbollah on the Lebanon border.
Biden said Wednesday the United States would work with Israel to prevent civilian deaths as it pounds Gaza, with Netanyahu promising to make efforts.
"We will continue to have your back. As you work to defend your people, we will continue to work with you and partners across the region to prevent more tragedy to innocent civilians," Biden said after meeting Netanyahu's war cabinet in Tel Aviv.
European markets fell across the board with London also dented by news of stubbornly high UK inflation.
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.
- China growth -
Forecast-busting economic growth data out of China provided a shaft of light for traders.
The 4.9 percent third-quarter expansion was slower than the previous three months but much better than analyst estimates, lifting hopes that the world's number-two economy was seeing some stabilisation after a torrid year.
The figures were helped by a healthy jump in retail sales, suggesting the country's consumers are regaining a little confidence, though officials continue to face calls for more stimulus to kickstart the economy.
A report showing a better-than-expected rise in US retail sales revived talk of another interest rate hike by the Federal Reserve, even after a string of decision-makers lined up in recent weeks to suggest monetary policy was likely tight enough to bring inflation down.