GLOBAL MARKETS-Wall Street choppy, oil dips as US holds back from Mideast military action

Updates asset prices to the U.S. stock market close

By Isla Binnie

NEW YORK, June 20 (Reuters) - Major Wall Street indexes closed lower on Friday while oil prices fell after U.S. President Donald Trump held back from immediate military action in the Israel-Iran conflict.

All eyes remained trained on the Middle East one week after an initial Israeli assault drew Iranian retaliation. The U.S. imposed Iran-related sanctions a day after Trump said he might take two weeks to decide on further action.

According to preliminary data, the S&P 500 .SPX lost 0.21%, while the Nasdaq Composite .IXIC shed 0.49%. The Dow Jones Industrial Average .DJI, however, rose 38.47 points, or 0.09%, to 42,210.13.

Stocks had been broadly positive at the open, and dipped in and out of negative territory during the session.

Global benchmark Brent crude futures LCOc1 fell 2.3% to settle at $77.01 a barrel, but gained 3.6% in the week. Front-month U.S. crude CLc1 - which did not settle on Thursday due to a U.S. holiday and expires on Friday - ended down 0.28% at $74.93, with a weekly gain of 2.7%. O/R

"Investors are a little bit nervous about buying stocks right in front of this situation and, more specifically, right in front of this weekend," said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

The new sanctions target entities, individuals and vessels providing Iran with defence machinery, and were seen as a sign of a diplomatic approach from the Trump administration.

"However, while Israel and Iran carry on pounding away at each other, there can always be an unintended action that escalates the conflict and touches upon oil infrastructure," PVM analyst John Evans said.

European foreign ministers urged Iran to engage with the U.S. over its nuclear programme after high-level talks in Geneva about a potential new nuclear deal ended with little sign of progress.

Europe's main bourses .EU had ended their session a touch higher, following similar gains across Asia .MIAPJ0000PUS. MSCI's gauge of stocks across the globe .MIWD00000PUS fell 0.01% on the day.

Gains on Hong Kong's Hang Seng, and South Korea's Kospi .KS11 linked to newly elected President Lee Jae Myung's stimulus, had boosted Asian shares during that session.

FED SPLIT

Federal Reserve policymakers made their first public comments since Chair Jerome Powell said on Wednesday that borrowing costs were likely to fall this year, but that he expects "meaningful" inflation ahead as Trump's tariffs raise prices for consumers.

The close split between governors on how to manage the risks was in full view as Governor Christopher Waller said the central bank should consider cutting as soon as the next meeting, while the Richmond Fed's Tom Barkin said there was no urgency to cut.

Powell had also cautioned on Wednesday against holding on too strongly to the forecasts.

Treasury yields fell after Waller's comments, and as concerns about the Middle East conflict supported demand for safe haven bonds.

The yield on benchmark 10-year notes US10YT=RR fell 2 basis points to 4.375%, from 4.395% late on Wednesday.

Demand rose for the U.S. dollar, pushing the greenback to a three-week high against the yen.

The dollar rose 0.03% against a basket of currencies including the yen and the euro =USD, with the euro EUR= up 0.3% at $1.1528. The index is poised to rise 0.6% this week.

Prices for gold XAU=, another traditional refuge, fell 0.13% to $3,365.91 and were poised for a weekly loss.

(Reporting by Isla Binnie in New York, additional reporting by Caroline Valetkevitch, Karen Brettel and Georgina McCartney, Editing by Louise Heavens, Rod Nickel and Marguerita Choy)

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