The prospect of U.S. involvement in Israeli strikes against Iran sparked unease among DAX investors on Corpus Christi, sending Germany's leading index down as much as 0.9 percent to 23,118 points during Thursday's holiday trading. The EuroStoxx50 slipped 0.7 percent. Oil prices surged at times amid concerns over potential supply disruptions. "Investors are nervous and uncertain," said Kyle Rodda of Capital.com. U.S. involvement, he explained, "would increase the risk of a larger regional conflict--with ramifications for global energy supplies and likely also for economic growth." Wall Street remained closed on Thursday due to the holiday.

According to a Bloomberg report, the U.S. is preparing for a possible attack on Iran in the coming days. Israel began airstrikes on Iranian nuclear and military facilities last Friday. Since then, the two countries have waged an unrelenting air war. Should the U.S. enter the conflict, this could trigger direct attacks on tankers and energy infrastructure, warned Helima Croft of RBC Capital. Iran produces around 3.3 million barrels of crude oil daily, making it the third-largest producer within the Organization of the Petroleum Exporting Countries. There are also fears that an escalation could disrupt trade flows through the Strait of Hormuz, a key maritime chokepoint along Iran's southern coast through which about 19 million barrels of oil are shipped daily.

OIL PRICES SURGE SINCE ISRAEL'S STRIKES ON IRAN

On Thursday, Brent North Sea oil and U.S. WTI crude climbed more than one percent at their peaks, to $77.66 and $76.29 per barrel, respectively. Prices eased somewhat after Russian envoy Kirill Dmitriev said Russia, the United States, and Saudi Arabia could act jointly if needed to stabilize oil markets. Since the onset of Israeli airstrikes, oil has traded more than eleven percent higher.

On the currency market, investors flocked to the U.S. dollar, which regained its safe-haven status amid rapidly escalating geopolitical tensions and recently appreciated in value. The dollar index rose 0.3 percent to a one-week high of 99.1570 points, while the euro fell 0.3 percent to $1.1449.

The U.S. Federal Reserve's interest rate decision on Wednesday evening made little impression on the market. Fed Chair Jerome Powell and his colleagues are targeting a total reduction of half a percentage point in 2025, sticking to their March outlook. The key policy rate remains in the 4.25 to 4.50 percent range. High inflation uncertainty, particularly due to President Donald Trump's tariff policies, is keeping the Fed on hold, said Eckhard Schulte of MainSky Asset Management. According to LBBW analyst Elmar Völker, the recent military escalation in the Middle East has the potential to further exacerbate the Fed's 'growth-inflation dilemma.' A swift departure from the central bank's wait-and-see stance is therefore not in sight.

CENTRAL BANK RATE DECISIONS IN THE SPOTLIGHT

Alongside the Fed, investors also eyed Thursday's rate decision from the Swiss National Bank, which responded to falling inflation with a sixth consecutive rate cut. As expected, the SNB policy rate was lowered by 0.25 percentage points to 0.00 percent. The Swiss franc was little changed against the dollar at 0.819 francs. In Norway, central bankers surprised markets with monetary easing, as many experts had only expected a cut next quarter. Core inflation, which excludes energy prices, recently fell more sharply than anticipated--to 2.8 percent. The Norwegian krone weakened against the dollar following the rate decision.

On the corporate side, defense stocks surged on the German market. Rheinmetall topped the DAX gainers with a 1.7 percent increase. Zalando, meanwhile, came under renewed pressure, extending their recent slide with a 3.8 percent loss.

(Reporting by: Daniela Pegna, edited by Sabine Ehrhardt. For inquiries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).