Major airlines on Friday began rerouting flights to avoid areas around the Strait of Hormuz following Iran's shooting down of a U.S. military surveillance drone there on Thursday. American aviation officials warned that commercial airliners could be mistakenly attacked.
The U.S. said it made plans for limited strikes on Iran in response, but then called them off. Australia's Qantas, British Airways, Dutch carrier KLM and Germany's Lufthansa said soon afterward that they will avoid the region.
Germany's DAX was flat at 12,353 after early gains were erased. The CAC 40 in Paris climbed 0.1% to 5,539. Britain's FTSE 100 rose 0.1% to 7,435. U.S. shares looked set for a tepid open with the future contract for the Dow Jones Industrial Average down close to 0.2% at 26,733. The S&P 500 future lost 0.2 percent to 2,953, after a record high close Thursday.
Shares retreated in Asia as weak manufacturing data from Japan helped dampen investor sentiment. A preliminary survey of Japanese manufacturers, the IHS Markit flash purchasing managers' index, showed indicators dropping, with new orders at the lowest level in three years.
The report noted "a soft patch for automotive demand and subdued client confidence in the wake of U.S.-China trade frictions." Japan's Nikkei 225 index lost 1.0% to 21,258.64 and the Hang Seng in Hong Kong dropped 0.5% to 28,476.75 as protesters once again took to the streets. South Korea's Kospi declined 0.3% to 2,125.62 and in Australia, the S&P ASX 200 declined 0.6% to 6,650.80. India's Sensex lost 0.7%.
The Shanghai Composite index added 0.5% to 3,001.98 as investors awaited signs that U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, might make progress in a meeting planned for next week at the Osaka, Japan, summit of the leaders of the Group of 20 major economies. Shares edged higher in Taiwan and Thailand but fell in Singapore.
ENERGY: The price of U.S. crude oil rose again on Friday after jumping 5.4% overnight on fears that escalating tensions between the U.S. and Iran could hinder oil shipments through the Strait of Hormuz. Benchmark U.S. crude oil picked up 39 cents to $57.44 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude oil, the international standard, gained 87 cents to $65.32 per barrel. It rose 4.3% Thursday to close at $64.45 a barrel.
CURRENCIES: The dollar rose to 107.54 Japanese yen from 107.28 yen on Thursday. The euro rose to $1.1314 from $1.1295.
Matt Ott in Madrid contributed to this report.