GLOBAL MARKETS-Oil dives, stocks rally after Trump Middle East pause

Updates ahead of US market open

By Marc Jones

LONDON, June 20 (Reuters) - Stock markets ticked higher on Friday while oil headed for its biggest daily drop since April after President Donald Trump pushed back a decision on U.S. military involvement in the Israel-Iran conflict.

Rising risks from the Middle East have loomed large on the world's top indexes again this week.

Europe's main bourses were all between 0.5%-1.4% higher .EU after similar gains across Asia .MIAPJ0000PUS, although it was touch and go whether it would be enough to prevent a second straight weekly loss for MSCI's main world index. .MIWD00000PUS

Israel bombed targets in Iran, and Iran fired missiles at Israel overnight as the week-old war continued but Friday's market moves, which also included a modest drop in the dollar .DXY, showed an element of relief.

That was largely pinned on Thursday's statement from the White House that Trump will decide in the next two weeks - rather than right away - whether the U.S. will get involved in the war.

European foreign ministers were meeting their Iranian counterpart in Geneva on Friday, seeking a path back to diplomacy over its contested nuclear programme.

The relief the U.S. wasn't charging into the conflict sent oil prices LCOc1 down as low as $76.10 per barrel, although they are still up 4% for the week and 20% for the month.

"Brent crude is down 2.5% today in the clearest sign that fears over an imminent escalation in the Israel/Iran conflict have eased," MUFG strategist Derek Halpenny said.

Gold, another traditional safe-haven play for traders, was also lower on the day and Nasdaq NQc1, S&P 500 ESc1, and Dow futures YMc1 had all moved into the green as Wall Street prepared to get going again having been closed on Thursday. .N

Asian shares .MIAPJ0000PUS had gained 0.5% overnight thanks to a 1.2% jump in Hong Kong's Hang Seng and as newly elected President Lee Jae Myung's stimulus plans saw South Korea's Kospi .KS11 top 3,000 points for the first time since early 2022.

China's central bank held its benchmark lending rates steady as widely expected in Beijing, while data from Japan showed core inflation there hit a two-year high in May, keeping pressure on the Bank of Japan to resume interest rate hikes.

That in turn lifted the yen JPY=EBS and pushed down the export-heavy Nikkei .N225 in Tokyo. .T

OIL RETREATS

The dollar was ending an otherwise positive week on a modest downer, with the euro EUR=EBS up 0.3% against the U.S. currency at $1.1527 and the pound 0.2% higher at $1.3494. /FRX

The U.S. bond market, which was also closed on Thursday, resumed trading with the key 10-year Treasury bond yield US10YT=RR flat at 4.39%, while German 10-year yields DE10YT=RR, which serve as Europe's borrowing benchmark rate, fell 2.5 basis points to 2.49%.

Gold prices XAU= eased 0.8% to $3,345 an ounce, leaving them set for a weekly loss of 2.5%.

But the main commodity market focus remained oil. Brent crude futures LCOc1 were last down $2.45, or around 3%, at $76.43 a barrel in London although they were still on track to end the week almost 3% higher.

PVM analyst John Evans said oil producers' "nightmare scenario" was that Iran or its proxies could block the Strait of Hormuz, something which has never happened and through which 20 million barrels is shipped each day.

JPMorgan estimates that amounts to about 20% of all global oil trade and 30% of seaborne oil trade.

"The market is currently assigning a probability below 20% to this happening," JPMorgan's Francesco Arcangeli wrote in a note, estimating thought that a full closure of the Strait could see oil prices surge to $120-$130 a barrel.

(Reporting by Marc Jones, Editing by Louise Heavens)

((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters Messaging: marc.jones.thomsonreuters.com@reuters.net X/Twitter @marcjonesrtrs))