By Michael Connor
NEW YORK (Reuters) - Oil prices jumped 5 percent and stock markets worldwide slumped on Thursday after Saudi Arabia and allies carried out air strikes in Yemen, which fueled worries in the Middle East that energy shipments may be put at risk.
Wall Street steadied in late trading, narrowing losses that had been as much as 1 percent to close just modestly lower with support from economic data and corporate earnings reports.
"The air strikes in Yemen have really created a risk-off mood," said Rabobank strategist Philip Marey.
Brent oil (LCOc1) closed up nearly 5 percent at $59.19 a barrel, but off a session high of $59.78. U.S. crude (CLc1) closed up 4.5 percent at $51.43 a barrel after reaching $52.48.
The MSCI world equity index , which tracks shares in 45 countries, was last off 0.80 percent.
In currency markets, the dollar fell against traditional safe havens the Swiss franc and the yen after warplanes from Saudi Arabia and other Arab countries struck Shi'ite Muslim rebels fighting to oust Yemen's president.
The dollar later recovered against the franc (CHF=) and was last up 0.4 percent at 0.9633 francs. Against the yen, the dollar was last at 119.26 yen (JPY=), off 0.18 percent.
The dollar was down earlier against the euro (EUR=RR) but recovered in New York trading on the view that central bank policy was more favorable for the U.S. currency. The euro was last off 0.80 percent at $1.0884.
Iran denounced the attacks as the Saudi military also targeted Iran-backed Houthi rebels besieging the southern Yemen city of Aden. Arab producers ship oil via the narrow Gulf of Aden and the prospect of bigger Middle East conflict sparked fears of a disruption of crude supplies.
A vertiginous slide in oil prices from more than $115 a barrel last June to a low of $45 in January has been a major driver of financial markets and a key factor driving global interest rates down and stock markets up.
The pan-European FTSEurofirst 300 index (.FTEU3) closed down 0.8 percent. In Germany, a major industrial economy heavily dependent on oil imports, the DAX index (.GDAXI) ended off 0.2 percent.
Wall Street's Dow Jones industrial average (.DJI) closed off 40.31 points, or 0.23 percent, to 17,678.23, the S&P 500 (.SPX) lost 4.9 points, or 0.24 percent, to 2,056.15 and the Nasdaq Composite (.IXIC) dropped 13.16 points, or 0.27 percent, to 4,863.36.
Gold rose, climbing 0.75 percent to $1,203.20 an ounce (XAU=), supported by the weak dollar and Middle East tensions.
Yields on U.S. Treasuries, often a safe haven for fretful investors, rose as the government held a sale of $29 billion of Treasury notes that met with soft demand. The benchmark 10-year note was off 25/32 and yielded 2.0069 percent, compared to 1.92 percent on Wednesday.
(Additional reporting by Marc Jones and Nigel Stephenson in London; Editing by James Dalgleish and Leslie Adler)