SINGAPORE: The U.S. dollar surged as oil prices climbed close to US$120 a barrel, prompting investors to seek safety in cash amid fears that a prolonged Middle East conflict could disrupt energy supplies and weaken global growth.

The greenback gave back some of its earlier gains later in the Asian trading session after a Financial Times report said G7 finance ministers would discuss releasing oil from emergency reserves in coordination with the International Energy Agency. The report caused oil prices to ease slightly after their earlier spike.

Even so, major currencies remained under pressure. The euro and sterling were down 0.6 percent and 0.7 percent, respectively, while the Australian dollar and the Swiss franc also weakened.

"The U.S. dollar is finding no shortage of support from traditional haven considerations and obviously, the United States' net energy exporter status in sharp contrast to most of Europe," said Ray Attrill, head of FX strategy at National Australia Bank.

The sharp move in oil triggered broad selling across financial markets.

Stocks, bonds, and precious metals all fell as investors grew increasingly risk-averse, concerned that rising energy prices could worsen inflation and slow economic growth. Many traders moved to lock in profits from recent gains.

"The longer this goes on, the more exponential the damage becomes in a domino effect, which is exactly what oil is now showing to a market that saw some takes last week that things could be a lot worse," said Michael Every, senior global strategist at Rabobank.

"If we are still in the same position this time next week, things could be quite terrifying."

The euro was last down 0.6 percent at $1.1548 after earlier touching a three-and-a-half-month low. Sterling fell 0.7 percent to $1.3333.

The dollar rose 0.43 percent against the Swiss franc to 0.7795. The Australian and New Zealand dollars trimmed earlier losses but were still down 0.35 percent and 0.1 percent, respectively.

Analysts said Asia may be particularly vulnerable to an energy price shock given the region's heavy dependence on Middle Eastern oil and gas.

The dollar hovered close to 159 yen in Asian trading, rising 0.4 percent to 158.47. It also gained 0.26 percent against the South Korean won, to 1,485.50, after earlier climbing as much as one percent.

"The real question is how high and how long prices stay elevated, because that's what will ultimately determine the economic fallout," said Deepali Bhargava, regional head of research for Asia-Pacific at ING.

"A prolonged conflict, coupled with continued currency weakness, would feed more directly into inflation pressures across the region."

Iran on March 9 named Mojtaba Khamenei to succeed his father as Supreme Leader, signaling that hardliners remain firmly in charge in Tehran a week into the war.

The conflict has already disrupted about one-fifth of global crude oil and natural gas supplies after Iran targeted ships in the Strait of Hormuz between its shores and Oman and attacked energy infrastructure across the region.

Qatar's energy minister told the Financial Times late last week that all Gulf energy producers could shut down exports within weeks, a move he said could push oil prices as high as $150 a barrel.

Higher energy prices can act like a tax on consumers and businesses while also fueling inflation, raising concerns that central banks may delay cutting interest rates.

Weak U.S. jobs data released on March 6 briefly slowed the dollar's rise and increased expectations of interest rate cuts. But by March 9, traders were pricing in less than 40 basis points of easing from the Federal Reserve by year-end.

"I think a spike in inflation from higher oil prices will divide the Fed," said Kyle Rodda, senior financial market analyst at Capital.com.

"Ultimately, the dynamic will likely delay any move from the Fed because policymakers will want time to review the impacts of any oil shock and how it influences the data."