Updates prices throughout, adds analyst comments

By Johann M Cherian

March 2 (Reuters) - U.S. stock index futures fell over 1% on Monday, with investors increasingly pricing in the prospect that the conflict in the Middle East could persist for weeks, potentially disrupting global trade flows and adding to inflationary pressures.

Sectors that were hit the most in premarket trading included airlines, as several carriers halted flights, while disrupted shipping through the crucial Strait of Hormuz pushed crude prices up 8%.

That painted an overall cloudy outlook for the global economy and also weighed on financial stocks.

Delta DAL.N and United Airlines UAL.O tumbled 6% each in premarket trading. Big banks such as Bank of America BAC.N and Citigroup C.N slid over 2% each.

Investors instead flocked to traditional safe havens such as the dollar USD. Higher precious metals prices helped miners such as Gold Fields GFI.N and Barrick Mining B.N add 2% each.

Defense stocks also got a boost, with Lockheed Martin LMT.N and RTX RTX.N gaining 7% each, while Kratos KTOS.O rose 10% and AeroVironment AVAV.O was up 13%.

After coordinated U.S. and Israeli strikes on Iran over the weekend killed Tehran's Supreme Leader, Israel launched retaliatory attacks following air strikes by Iran and Hezbollah militants in Lebanon, deepening fears that the conflict could widen further across the region.

U.S. President Donald Trump also said the conflict could stretch on for another four weeks, according to a report.

"With Trump saying the campaign could run for four weeks, there is plenty of scope for more downside should the conflict widen to encompass oil and gas infrastructure," said Chris Beauchamp, chief market analyst at online trading and investing platform IG.

At 05:42 a.m. ET, Dow E-minis YMcv1 were down 508 points, or 1.04% and S&P 500 E-minis EScv1 were down 67 points, or 0.97%. Nasdaq 100 E-minis NQcv1 were down 340.25 points, or 1.36%.

Wall Street's fear gauge, the CBOE VIX index .VIX, jumped 3.3 points to a three-month high of 23.2.

Markets were already in a state of uncertainty over AI-disruption worries, jitters in the private credit space and a muddied trade outlook that led to the S&P 500 .SPX and the Nasdaq .IXIC posting their steepest monthly drops since March 2025 on Friday.

A prolonged spike in oil prices would add to inflationary pressures at a time when data shows U.S. tariffs are already pushing prices higher.

Those concerns lifted Treasury yields from early declines, and investors raised their bets on the Federal Reserve staying put on interest rates in June.

Wells Fargo's chief equity strategist, Ohsung Kwon, said that the benchmark S&P 500 .SPX could fall to 6,000 points, nearly 13% from the last close, if crude prices hit over $100/barrel in a worst-case scenario. Earnings could also be hit by about 1.3% in an oil‑driven stagflation shock.

Oil companies Occidental Petroleum OXY.N and ConocoPhillips COP.N added over 6% each, while crude-price-sensitive cruise stocks Carnival CCL.N and Royal Caribbean RCL.N slid 6% each.

On the data front, manufacturing PMIs for last month are due later in the day and the focus will shift to a key non-farm payrolls report later in the week.

(Reporting by Pranav Kashyap, Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips, Maju Samuel, Anil D'Silva)

((pranav.kashyap@tr.com; +919886482111;))