U.S. Markets

European shares fall on Middle East tensions; oil surge hits airline stocks

(Reuters) - European shares slipped from near record highs on Friday after a U.S. air strike in Iraq that killed a top Iranian commander increased Middle East tensions and spurred moves out of risk assets, while an oil price surge hammered airline stocks.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, January 2, 2020. REUTERS/Staff

Iran’s Supreme Leader Ayatollah Ali Khamenei vowed harsh revenge after Iranian Major General Qassem Soleimani, architect of the country’s spreading military influence in the Middle East, was killed in the air strike at Baghdad airport.

Leaders from many other countries urged restraint. But Ken Odeluga, market analyst at City Index said: “As such, chances that a further escalation of tensions with Washington can be avoided, appear to be low.”

The pan-European STOXX 600 index .STOXX was down 0.3%, with German shares .GDAXI having their worst day in a month as Lufthansa LHAG.DE slumped 6.5%.

Along with losses in airlines Air France AIRF.PA and EasyJet EZJ.L Europe's travel and leisure sector .SXTP shed 1.6%, on fuel price concerns as oil jumped more than 3%.

The jump in oil prices lifted the regional energy sector index .SXEP to seven week highs which tied in with a weaker pound to help London's FTSE .FTSE buck the trend.

“Even if we hear nothing over the weekend the events have shown that this is a complex geopolitical situation and the ongoing uncertainty will have to be dealt with for a while,” said Ingo Schachel, head of equity research at Commerzbank.

Global financial markets had started the new decade on a high note on improving U.S.-China trade relations, further monetary easing in China and a brightening economic outlook.

But data on Friday showed unemployment Germany rose more than expected in December, while U.S. manufacturing for the same period saw a bigger-than-expected dip.

Friday’s moves tipped an otherwise flat week for Europe into red.

In corporate news, tobacco companies Match SWMA.ST and British American Tobacco BATS.L rose to the top of the STOXX 600 after the U.S. Food and Drug Administration exempted menthol and tobacco from a list of popular e-cigarette flavours that it had banned under new guidelines.

Cellnex Telecom SA CLNX.MC rose 2.3% after agreeing to buy Portuguese telecommunication tower operator OMTEL for around 800 million euros ($894 million).

Trading for the first time this year, Swiss stocks .SSMI, rose 0.8% after a near 26% rise last year as a investors bought into consumer goods.

Reporting by Susan Mathew and Sagarika Jaisinghani in Bengaluru, additional reporting by Shreyashi Sanyal; Editing by Shailesh Kuber/Arun Koyyur/Jane Merriman