(Updates at 1130 GMT)
Global shares hit a two-month low on Friday after Israel's attack on Iran triggered a rush into safe haven bonds and gold, lifting Wall Street's 'fear index' to its highest level since October.
Israel's attack on Iranian soil was the latest tit-for-tat exchange between the two arch foes, but losses in markets eased, sending oil and gold lower ahead of Wall Street's open as Iran said it has no plans for an immediate retaliation, denying that any attack had taken place.
U.S. stock index futures 1YMcv1 EScv1 NQcv1 were down about 0.4%, with no major data expected before the opening bell.
Safe haven currencies such as the yen and Swiss franc had initially rallied on news of the attack, but later pared their gains, with gold still on track for its fifth week of gains.
Oil prices LCOc1 had jumped $3 a barrel on concern that Middle East oil supply could be disrupted, but later began moving lower as fears of a major escalation in Middle East hostilities eased.
U.S. Treasuries rallied, pushing down yields on the benchmark 10-year bond US10YT=RR to 4.5981%.
The MSCI All Country stock index .MIWD00000PUS was down 0.38%, hitting its weakest level since February but off the day's lows.
In Europe, the STOXX .STOXX index of 600 leading companies was down 0.5%, hitting its lowest level in over a month.
Markets are caught in the crosshairs of a "triple whammy" - a U.S. Federal Reserve reluctant to cut interest rates, disappointing semiconductor earnings, such as at Taiwan's TSMC, and rising geopolitical risks.
Naka Matsuzawa, chief macro strategist at Nomura in Tokyo said the events in the Middle East exacerbate the trend of rising global inflation expectations.
"This is not just a Middle East thing that causes the risk off now. More fundamentally, it's the fading rate-cut expectations by the Fed, and on the back of it is higher inflation expectations, and this conflict...makes the thing worse basically," Matsuzawa said.
The CBOE Volatility Index .VIX , also known as Wall Street's 'fear gauge', hit its highest level since late October.
Netflix NFLX.O will be an initial focus on Wall Street after its shares fell after-hours on Thursday when the company unexpectedly announced that it will stop reporting subscriber numbers each quarter, seen as a sign that years of customer gains in the streaming wars are coming to an end.
Ross Yarrow, managing director of equities at RW Baird, said the tensions in the Middle East have the potential to tick the two biggest inflation risk boxes.
"The first of that is an oil shock - we have seen this tape play out before, with Brent over $100 a barrel and so on," Yarrow said.
"The other is container shipping costs," Yarrow said, adding that so far there was no sign of these going back up after their blip higher earlier in the year due to tensions in the Red Sea.
Meanwhile, first quarter earnings season gets underway, with market expectations quite low with pressure on a narrow group of stocks to perform, Yarrow added.
Investors are looking ahead to next week's key U.S. first quarter economic growth figures, and the Fed's favoured measure of inflation, the core PCE deflator.
Hopes for a Fed rate cut as early as June have now been pushed back to later in the year, taking some wind out of the stock market.
"We still think we'll get some interest rates cuts in America this year, but far fewer than we thought just months ago," ING bank analysts said.
CHIPS ARE DOWN Equity markets were already heading lower before the Middle East headlines, as more robust U.S. economic data spurred additional Fed officials to signal no rush to lower interest rates.
Chip-sector stocks were hit particularly hard by both the outlook for protracted tight monetary policy and investor disappointment at Taiwan Semiconductor Manufacturing Co's 2330.TW decision to leave capital spending plans unchanged. The stock slumped as much as 6.6%.
A day earlier, ASML ASML.AS , the largest supplier of equipment to computer chip makers, reported lacklustre new bookings.
MSCI's broadest index of Asia-Pacific shares .MIAP00000PUS was down 1.7%, after earlier diving as much as 2.6%.
The safe-haven yen rallied as much as 0.7% against the dollar JPY= , but was last trading little changed on the day.
Gold XAU= also pared its gains for the day to edge lower, trading at $2,375 an ounce, after last week's all-time high at $2,431.29.
Brent LCOc1 futures surged as much as 4.2% and were last trading down 1% at $86.29. Iran is the third-largest oil producer of the Organization of the Petroleum Exporting Countries, according to Reuters data.
Bitcoin BTC= was up 2% at $64,900.
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