Syria rattles global markets for second day

Abo Al-nur Sadk | AFP | Getty Images

Syrian men evacuate a victim following an air strike by regime forces in the northern city of Aleppo on August 26, 2013.

Global equity markets headed south for a second straight day as growing worries about U.S. military intervention in Syria sparked heavy selling in stocks, while oil pushed higher and safe-havens such as Treasurys and the Japanese yen rallied.

Japan's benchmark stock index led a tumble in Asian markets early Wednesday, with a fall of more than two percent to a two-month low. Brent crude oil prices extended their gains to a fresh six-month high and a safety bid briefly pushed the yen to its highest level against the dollar in more than two weeks.

Emerging markets were also under renewed pressure, the Philippine stock market dropped 5 percent at one point, before clawing back to finish down 3 percent. European stocks followed their Asian counterparts lower on Wednesday morning, though losses were limited.

(Read more: Oil prices seen higher but shock not yet in the cards)

"There is so much uncertainty and (Syria) is not just an abstract event," Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors, told CNBC Asia's "The Call." "You need to have a strong will to jump into these markets under these conditions."

Tensions over Syria have escalated in the past few days. The government is believed to have used chemical weapons recently against scores of civilians and rebels who have been fighting the regime for two years.

The U.S. could hit Syria with missile strikes as early as Thursday, senior U.S. officials told NBC news.

Egyptian billionaire Naguib Sawiris, the founder of the Free Egyptians Party, told CNBC that the West should help rid Syria of its "dictatorship" whether Syrian President Bashar Assad used chemical weapons or not.

"Even if he didn't use chemical weapons, when 1,300 people die in one day, what do you call that? Is it important whether they die by gas or by being shot by government forces? We want to help the Syrian people get out of a dictatorship but under no [circumstances] should fanatic, terrorist elements operating in Syria now be given the reins."

(Read more: US strike against Syria 'as early as Thursday')

Brent crude hit a fresh six-month high at about $117.23 a barrel on fears that U.S. military intervention in Syria could further destabilize the Middle East, which pumps a third of the world's oil.

They rose more than 3 percent on Tuesday, notching up their biggest daily percentage gain since October, Reuters reported. U.S. crude futures meanwhile rose more than $2 to their highest level in more than two years on Wednesday.

Safe havens such as U.S. Treasurys remained well bid early on Wednesday, with the benchmark 10-year yield hovering around 2.72 percent, down more than 20 basis points from a peak hit last week.

(Read more: Syria is just the latest of the market's troubles)

"We continue to see a lot of volatility as various headlines on Syria hit the market," said Stan Shamu, market strategist at trading firm IG. "We had a swift and sharp drop in the dollar through 97 yen as flight to safety encourages buying in the yen, Treasurys and of course gold."

The yen was trading at about 97.22 per dollar, while gold prices were little changed on the day at about $1,415 and within sight of the previous day's highs.

What next?

Analysts said geopolitical risks appear to have replaced economic data and speculation about the timing of an unwinding of U.S. monetary stimulus as the key driver for global markets for now.

"Yesterday was a fine example how geopolitical tensions can outweigh economic data and derail existing trends," Desmond Chua, market analyst at CMC Markets said in a note, referring to the overnight sell-off in stocks and gains in safe-haven assets.

(Read more: Syria and tapering fears send stock markets lower)

IG's Shamu added: "Economic readings have been thrown out of the window and it's all about headline risk at the moment."

"From a trading perspective, pre-empting this [Syria] situation is really hard to do," he said.

— By CNBC.Com's Dhara Ranasinghe; follow her on Twitter @DharaCNBC