European shares touch two-week lows on Middle East conflict

European shares fell across the board on Monday as the military conflict in the Middle East showed no signs of easing, while energy and defence stocks jumped.

The pan-European STOXX 600 .STOXX fell 1.8% to its lowest since mid-February to 622.35 points by 0812 GMT, retreating from a record high hit on Friday, with most sectors in the deep red.

Energy majors Shell SHEL.L, BP BP.L, and TotalEnergies TTEF.PA all gained over 5% each, following oil prices, which surged as much as 13% after shipping in the crucial Strait of Hormuz was disrupted by retaliatory Iranian attacks. The energy .SXEP index was 3.5% higher.

Fresh military strikes by the United States and Israel on Iran continued after weekend attacks that killed Iran's Supreme Leader Ayatollah Ali Khamenei, prompting Tehran to launch missile barrages across the region and raising fears the conflict could widen and potentially draw in neighbouring countries.

Travel and leisure .SXTP stocks, which include airline and hotel companies, declined the most, down 4.4%, with Lufthansa LHAG.DE falling 11% after the German airline extended flight suspensions due to the situation in the Middle East.

Banking stocks .SX7E fell 3.6%, while insurers .SXIP fell 2%.

On the flip side, the defence stocks such as BAE Systems BAES.L, Rheinmetall RHMG.DE, Saab SAABb.ST and Leonardo LDOF.MI all gained between 5% and 8%.

The defence sector <.SXPARO rose 0.4% as the escalation of the conflict raised expectations of higher U.S. defence spending.

-Reporting by Avinash P and Pranav Kashyap in Bengaluru; Editing by Rashmi Aich/Reuters