Missiles are carried on a truck as an Iranian army band leader conducts the music band during Army Day parade at a military base in northern Tehran, Iran. AP
Iran's state media reported explosions in the central province of Isfahan on Friday, as US media quoted officials saying Israel had carried out strikes against its arch-rival.
"Global stock indices took at hit, oil and gold prices spiked higher when Israel launched a retaliatory missile attack on Iran overnight," said Axel Rudolph, senior market analyst at online trading platform IG.
"De-escalating remarks by an Iranian official led to prices normalising ahead of the weekend, though," he added.
Crude oil prices surged as much as four percent on worries about supplies from the oil-rich region before turning lower as it became apparent the strike was limited and neither side appeared eager to escalate. Crude prices then began rising again.
The initial rush for safety also saw the yen rally against the dollar and gold jump back past $2,400 per ounce, while the Swiss franc and US government bonds won support. They all later gave up much of those gains.
Asian equities bore the brunt of the shock of the news of the attack. European equities recovered to end the day mixed, with Wall Street stocks also mixed in late morning trading.
"Notwithstanding the limited response, we wouldn't say that there is an all-clear signal being sounded by the market, but there is a relief signal being sent that things weren't worse and that maybe, just maybe, the tit-for-tat strikes will come to an end and a wider regional conflict will be avoided," said Briefing.com analyst Patrick O'Hare.
Israel had warned it would hit back after Iran fired hundreds of missiles and drones at Israel almost a week ago in retaliation for a deadly Israeli strike that levelled Iran's consular annex at its embassy in Syria.
Fears of a major regional spillover from the Israeli war on Gaza have since soared. Appeals by world leaders for de-escalation again echoed on Friday.
The mood among traders was already downbeat as they contemplated the prospect of the Federal Reserve staying pat on US interest rates this year following data showing jobless claims came in below expectations while a gauge of business activity hit a two-year high.
Atlanta Fed boss Raphael Bostic said inflation is "too high" and he felt there was no need to cut borrowing costs until later in the year.
New York Fed chief John Williams and governor Michelle Bowman also said they saw fewer reductions than expected, if at all, this year.
In corporate action, shares in Netflix slumped around eight percent as trading got under way despite the streaming giant topping earnings and subscriber expectations in results published after the closing bell on Thursday. Analysts cited disappointment over the company's commentary on sales in the current quarter.
- Key figures around 1530 GMT -
West Texas Intermediate: UP 0.3 percent at $83.01 per barrel
Brent North Sea Crude: UP 0.2 percent at $87.25 per barrel
New York - Dow: UP 0.4 percent at 37,928.37 points
New York - S&P 500: DOWN 0.4 percent at 4,992.28
New York - Nasdaq Composite: DOWN 1.1 percent at 15,429.98
London - FTSE 100: UP 0.2 percent at 7,895.85 (close)
Paris - CAC 40: FLAT at 8,022.41 (close)
Frankfurt - DAX: DOWN 0.6 percent at 17,737.36 (close)
EURO STOXX 50: DOWN 0.4 percent at 4,918.09 (close)
Tokyo - Nikkei 225: DOWN 2.7 percent at 37,068.35 (close)
Hong Kong - Hang Seng Index: DOWN 1.0 percent at 16,224.14 (close)
Shanghai - Composite: DOWN 0.3 percent at 3,065.26 (close)
Dollar/yen: DOWN at 154.51 yen from 154.67 yen on Thursday
Euro/dollar: UP at $1.0666 from $1.0645
Pound/dollar: DOWN at $1.2415 from $1.2438
Euro/pound: UP at 85.91 pence from 85.57 pence
Short link: