GLOBAL MARKETS-Oil jumps, stocks drop as Iran tightens grip on Strait of Hormuz

(Updates to afternoon New York time)

* Oil prices jump after Iran attacks UAE port, hits South Korean vessel in Hormuz

* Central banks turn hawkish as oil-driven inflation complicates rate outlook

* Yen volatility unsettles forex markets, analysts cite possible Japanese intervention

By Karen Brettell and Nell Mackenzie

May 4 (Reuters) - Oil prices jumped about 5% on Monday and stocks fell as Iran escalated its military campaign, striking a UAE oil port with drones and hitting a South Korean vessel in the Strait of Hormuz.

Brent futures rose $6.43, or 5.9%, to $114.60, while U.S. West Texas Intermediate (WTI) crude rose 4% to $105.91. The moves came after U.S. President Donald Trump pledged over the weekend that the U.S. Navy would force the strait open.

The Strait of Hormuz, through which roughly a fifth of the world's seaborne oil and gas normally flows, has been severely disrupted for two months. Monday's attacks reinforced fears that any military effort to reopen it could trigger a broader confrontation.

U.S. stocks fell broadly, with the Dow Jones Industrial Average down 1.03%, the S&P 500 0.53% lower, and the Nasdaq Composite off 0.41%.

"The longer oil prices stay elevated above $100 a barrel, the more the fiscal stimulus from the tax cuts passed in 2025 shifts from being a stimulus to acting as a shock absorber," said Brock Weimer, analyst, investment strategy, at Edward Jones.

MSCI's broadest index of global shares outside Japan also fell, reversing earlier gains after tech-heavy South Korean stocks closed over 5% higher. In Europe, German carmakers dragged on regional equities after Trump said on Friday he would raise tariffs on European cars and trucks.

The pan-European STOXX 600 index fell 0.99%. Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 5 basis points to 3.08%. Bond yields move inversely to prices. Markets in London were closed for a public holiday.

CENTRAL BANKS TURN HAWKISH AS OIL FANS INFLATION FEARS

The oil-driven inflation threat pushed bond yields higher and complicated the outlook for monetary policy globally.

Markets no longer expect the Federal Reserve to cut rates this year, and have begun pricing in hikes from both the European Central Bank and the Bank of England. Barclays on Monday joined other brokerages in forecasting the Fed will not ease policy this year. Friday's April payrolls report could further shift expectations.

The yield on benchmark U.S. 10-year notes rose 7.6 basis points to 4.454%.

YEN VOLATILITY KEEPS FOREX TRADERS ON EDGE

Currency markets were also unsettled, with traders closely watching for signs of Japanese intervention to support the yen.

The dollar fell sharply against the yen in Asian trading before reversing direction. The Japanese yen was last down 0.11% against the greenback at 157.25 per dollar. Analysts believe Tokyo may have already intervened last week to the tune of around $35 billion.

"The case for intervention is strong, given the inflationary impact of a weaker yen via import prices, a U.S. administration broadly comfortable with such action, and Japan's ample FX reserves," said Roberto Cobo Garcia, head of G10 FX strategy at BBVA.

The euro fell 0.3% to $1.1685 while sterling weakened 0.34% to $1.3526.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.35% to 98.50.

In commodity markets, spot gold fell 2.22% to $4,511.36 an ounce.

(Reporting by Karen Brettell, Lawrence Delevingne, Samuel Indyk, Niket Nishant, Utkarsh Hathi and Nell Mackenzie; Editing by Dhara Ranasinghe, Barbara Lewis and Matthew Lewis)