Israel-exposed stocks fall amid investor worries over Middle East conflict

By Danilo Masoni and Sruthi Shankar

(Reuters) -Shares in U.S.- and European-listed companies with business exposure to Israel fell on Monday as investors worried that an escalation in the conflict with Palestinian Islamist group Hamas would impact their operations.

The Israeli military continued to battle on Monday to clear Hamas gunmen from its territory more than two days after they burst across the fence from Gaza on a deadly rampage. Israel has called up 300,000 reservists, the biggest mobilization in its history, as the army prepares for an offensive in the Gaza Strip.

The fighting over the last two days has roiled global markets. Wall Street's main indexes were higher on Monday after falling earlier, while European stocks dipped as surging oil prices fanned inflation worries and investors fled to the safety of government bonds and the dollar.

Shares of Mobileye Global, the U.S.-listed driverless car firm controlled by Intel which is also the largest Israeli company by market capitalization, dropped by more than 5%. Israeli chipmaker Tower Semiconductor fell 5.14%, while cybersecurity firm Check Point Security slipped 1.77%.

Israel's Teva Pharmaceutical, the world's largest generic drugmaker, fell 5.25%, and shares of fertilizer group ICL Group dipped 0.7%.

The iShares MSCI Israel ETF and the ARK Israel Innovative Technology ETF, U.S. exchange-traded funds exposed to Israel, fell 7.8% and 4.9%, respectively.

"If the war remains confined between Israel and Palestinians, it's likely that the markets will forget about it after a few days," Raffi Boyadjian, lead investment analyst at XM, said in a note. "However, even if that turns out to be the case, the long-term peace prospects have diminished as the violence has probably dampened hopes of a normalization of relations between Israel and regional power Saudi Arabia."

Energy and defense stocks on both sides of the Atlantic rose, while airline shares sank on fears of higher fuel costs and as several carriers suspended flights to or from Tel Aviv.

Fuel-related worries also hit shares of U.S. cruise operators Norwegian Cruise Line Holdings, Carnival and Royal Caribbean Group, which were down between 2.4% and 4.7%, respectively.

Israel's troops were fighting to recapture towns from Hamas gunmen who killed 700 Israelis and seized hostages, even as the country responded with its heaviest ever bombardment of the Gaza strip, killing more than 400 people.

Energean dropped 17% in London, making the UK- and Israel-listed oil producer focused on the Eastern Mediterranean one of the biggest losers on the region-wide STOXX Europe 600 benchmark index.

Energean said the northern area of Israel, where its operations are based, was currently not under attack and that production, supply and offshore work were ongoing.

London-listed shares in BATM Advanced fell 7.7% although the Israel-based technology firm said it did not expect the conflict to have a material impact on trading.

India's Adani Ports And Economic Zone, which owns the shipping container and tourist cruise Haifa Port in Northern Israel, fell 5.1%. Adani Ports said its Israeli port was operational.

(Reporting by Danilo Masoni, Sruthi Shankar, and Chibuike Oguh in New York; additional reporting by Noel Randewich; Editing by Amanda Cooper, Deborah Kyvrikosaios, Arun Koyyur and Leslie Adler)