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By Anna Hirtenstein and Joanne Chiu 

Tehran's military response to the U.S.'s killing of a key Iranian general rattled markets, but the moves in stocks, bonds, and commodities quickly moderated as investors reassessed the chances of a broader conflict.

Late Tuesday, the Pentagon said Iran fired missiles at bases in Iraq where U.S. troops are stationed. Iran's Islamic Revolutionary Guard Corps said the attacks were retaliation for the killing last week of Maj. Gen. Qassem Soleimani.

Iran's foreign minister said the country had taken "proportionate measures in self-defense" and didn't seek escalation or war.

On Twitter, President Trump said "All is well!" adding, "Assessment of casualties & damages taking place now. So far, so good!"

Global stocks slid moderately, with the Stoxx Europe 600 losing 0.5% and the U.K.'s FTSE 100 down 0.6%. U.S. futures pared losses, with securities tied to the S&P 500 down 0.2%, after falling as much as 1.7%.

Japan's Nikkei 225 closed 1.6% down after trading as much as 2.6% lower. Indexes in Hong Kong and South Korea both narrowed losses to around 1%.

"The price action in the financial markets post the attack also gave a feeler that markets might not be expecting an all-out confrontation," said Jim Reid, a multiasset research strategist at Deutsche Bank.

Brent crude, the global oil benchmark, added 1.1% to $69.02 a barrel, after spiking to as high as $71.75.

Suhail al-Mazroui, the energy minister of the United Arab Emirates, said oil producers would respond to any supply shortages, but that disruptions weren't likely and the option wasn't being currently discussed by the Organization of the Petroleum Exporting Countries.

"We are not forecasting any shortage of supply unless there is a catastrophic escalation which we don't see," Mr. al-Mazroui said.

Francis Lun, chief executive officer at Geo Securities in Hong Kong, said an initial knee-jerk reaction had partly reversed.

"Some investors believe Trump might not be able to gather enough support to escalate the tensions further," he said.

Daryl Liew, head of portfolio management at REYL Singapore, said the situation was worsening and was unlikely to be resolved soon. But he added: "I don't think it's in the interests of the U.S. to escalate this into a full-blown war in an election year."

Rallies in government bonds and gold, two assets that tend to gain in times of stress, lost steam. The yield on the benchmark 10-year Treasury note declined 0.03 percentage points to 1.8%, up from a low of 1.7%. Yields fall as prices rise.

Gold stood 1% higher at $1,590.40 an ounce, after briefly topping $1,600 for the first time since April 2013.

Stefan Hofer, chief investment strategist at LGT Bank, said higher oil prices could slow global growth.

"Rising oil prices is a tax on consumption," he said, adding that investors should accumulate gold partly as a hedge against geopolitical events.

Xie Yu contributed to this article.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

January 08, 2020 04:16 ET (09:16 GMT)

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