* MSCI Asia ex-Japan off 0.5%
* Iran launches missile attacks on Iraqi bases housing U.S. forces
* U.S. crude futures, gold soar amid fears of further escalation
* Asian stock markets: tmsnrt.rs/2zpUAr4
By Andrew Galbraith
SHANGHAI, Jan 8 (Reuters) - Asian shares and U.S. treasury yields plunged on Wednesday, while gold and oil shot higher after Iran fired rockets at an Iraqi airbase that hosts U.S. military forces, stoking fears of further sharp escalations in a developing conflict.
Iran’s missile attacks on the Ain Al-Asad air base and another in Erbil, Iraq, early Wednesday came hours after the funeral of an Iranian commander whose killing in a U.S. drone strike has raised fears of a wider war in the Middle East.
In morning trade, MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.5%. Japan’s Nikkei dropped 2.5% and Australian shares fell 1%.
U.S. crude soared 4.42% to $65.47 a barrel.
“We’ve moved on from how Iran will respond to now anticipating the U.S. 52-pronged response as the U.S. military forces in the region are in a heightened state of alert while likely preparing for war,” said Stephen Innes, strategist at AxiTrader. “It’s not going to be pretty today”
The sharp sell-off in risk assets was accompanied by steep drops in U.S. Treasury yields as investors flocked to safety. Benchmark 10-year Treasury notes yielded 1.7188%, down more than 10 basis points from a U.S. close of 1.825% on Tuesday.
The two-year yield dropped to 1.4581% compared with a U.S. close of 1.546%.
The dollar also plunged against the yen, with the Japanese currency touching its strongest point against the greenback since October. The U.S. currency was last down 0.69% against the yen at 107.67.
The euro gained 0.1% on the day to $1.1161.
The flight to safety and a falling dollar supported gold, which rocked 1.91% higher on the spot market to $1,603.93 per ounce. (Reporting by Andrew Galbraith)