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NEW YORK (Reuters) - The prospect of Western military action against Syria hit emerging market assets hard on Wednesday, pushed oil to a six-month high and fueled a rebound in the dollar as investors sought the greenback's safety.
U.S. stocks opened slightly higher as selling pressure waned in the wake of Tuesday's worst decline for the S&P 500 .SPX since June.
In the scramble for safety, investors turned to gold, which hit a 3-1/2 month peak above $1,430 an ounce, and bought the dollar on a view that it was the ultimate refuge from the risks of intensified upheaval in the Middle East.
Emerging markets, such as Syria's neighbor Turkey, already being pummeled by an expected reduction in U.S. stimulus measures, took further hits. The Turkish lira and India's rupee both touched record lows against the dollar.
"The dollar's rally is clearly related to Syria," said David Starkey, senior market analyst at Cambridge Mercantile Group in Toronto. "Investors realize that the dollar is still the safest currency to be in right now. Also, momentum is indicating that it's time for the dollar to pick up a little ground."
The moves stem from signs the United States and its allies are gearing up for a strike against President Bashar al-Assad's forces, blamed for last week's chemical weapons attacks. Traders fear such a move could prompt retaliatory action, engulfing a region that supplies a third of the world's oil.
At one point those concerns pushed Brent crude above $117 a barrel and the U.S. benchmark to its highest level in over two years, though both subsequently eased off the highs in volatile trading.
In the Middle East, Dubai's stock index .DFMGI shed 1.4 percent to add to the 7 percent loss recorded on Tuesday, leaving it near a six-week low.
In Europe, the spike in oil prices dented airline shares, helping push down European equities for a third day as the threat of an attack against Syria looked closer. But oil producers such as Statoil and BG Group gained.
Heavy selling across Asian markets, particularly in southeast Asia, sent MSCI's main emerging equity index .MSCIEF down 0.5 percent and left its world equity index .MIWD00000PUS, which tracks share moves in 45 countries, down 0.5 percent at seven-week lows.
The Dow Jones industrial average .DJI was up 28.26 points, or 0.19 percent, at 14,804.39. The Standard & Poor's 500 Index .SPX was up 3.18 points, or 0.20 percent, at 1,633.66. The Nasdaq Composite Index .IXIC was up 12.20 points, or 0.34 percent, at 3,590.72.
In Europe, the FTSEurofirst 300 .FTEU3 index of top European shares was down 0.5 percent, a day posting its largest daily drop in two months.
The dollar was up 0.2 percent against the Swiss franc at 0.9185 franc and against a basket of currencies, the greenback .DXY was up 0.4 percent at 81.50. The euro was up 0.3 percent against the yen at 130.25 yen. Against the dollar, the single currency was down 0.2 percent at $1.3366.
Amid the worries over Syria, investors largely shrugged off data showing euro zone bank lending contracted further in July, which highlighted the fragility of the bloc's nascent recovery and should keep pressure on the European Central Bank to maintain its expansive monetary policy.
However, flight-to-quality demand buoyed German government bonds, sending the 10-year Bund yield down 3 basis points to 1.824 percent as it moves further away from Friday's 1-1/2 year highs of 1.98 percent.
The benchmark 10-year U.S. Treasury note, which rose on Tuesday, was down 15/32 in price, the yield at 2.7635 percent.
Britain's pound, meanwhile, slipped against both the dollar and the euro as investors focused on a speech in which new Bank of England Governor Mark Carney is likely to reaffirm his intention to keep interest rates low until end-2016.
Many anticipate that Carney will try and talk down a sharp rise in UK money market rates following a run of strong economic data and reiterate that the bank rate will stay at a record low of 0.5 percent until the jobless rate falls to 7 percent.
Military forces around Syria: link.reuters.com/fen62v
Asia money & markets: link.reuters.com/var99t
Reporting by Angela Moon; Editing by Dan Grebler