* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
* Gold hits seven-year high
* Oil hits highest since September
* MSCI All-Country World Index wipes out 2020's gains
By Ritvik Carvalho
LONDON, Jan 6 (Reuters) - Tensions in the Middle East after the United States killed an Iranian general erased new year's gains for world stocks on Monday as investors pushed safe-haven gold to a seven-year high and oil jumped to its highest since September.
The United States detected a heightened state of alert by Iran's missile forces, as President Donald Trump warned the U.S. would strike back, "perhaps in a disproportionate manner", if Iran attacked any American person or target.
Iraq's parliament on Sunday recommended all foreign troops be ordered out of the country after the U.S. drone attack killed the Iranian military commander and an Iraqi militia leader.
Spot gold gained 1.8% to $1,579.72 per ounce to reach its highest since April 2013. Oil prices extended gains on fears any Middle East conflict could disrupt global supplies. Brent crude futures jumped past the $70 a barrel mark, while U.S. crude climbed 1.7% to $64.12.
European shares extended losses and were set for their worst day in a week, with the pan-European STOXX 600 index down 1% by midday in London. The European oil and gas stock index rose about 0.86%, the only gains, to reach its highest since July.
"Geopolitical events by their nature are unpredictable, but previous periods of increased tensions suggest that the impact on wider markets tends to be short-lived, with more lasting effects confined to local markets," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
"In general, this supports holding a diversified portfolio."
MSCI's All-Country World Index, which tracks shares in 47 countries, was down 0.34%, erasing all its new year's gains in its biggest two-day fall since early December.
In Asia, Japan's Nikkei slid almost 2%. E-Mini futures for the S&P 500 fell 0.6%, indicating a lower open on Wall Street later.
Chinese shares, which had opened in the red, reversed their losses, as did Australian shares, which ended the day flat. Hong Kong's Hang Seng index lost 0.8%.
Sovereign bonds benefited from the safety bid, with yields on 10-year Treasuries down at 1.7725% after falling 10 basis points on Friday.
The yen remained the favoured safe haven among currencies thanks to Japan's massive holdings of foreign assets. Investors assume Japanese funds would repatriate their money during a true global crisis, pushing the yen higher.
"You can't accuse the markets of over-reacting," said Societe Generale strategist Kit Juckes. "FX moves are small, slightly lower bond yields, slightly softer equities, but nothing is going mental."
On Monday, the dollar was last at 108.05 yen, after falling to a three-month trough of 107.77 earlier in the session.
The dollar was steadier against other majors, with the euro up at $1.1202. Against a basket of currencies, the dollar was holding at 96.562. (Reporting by Ritvik Carvalho, additional reporting by Marc Jones in London and Wayne Cole and Swati Pandey in Sydney; editing by Ed Osmond, Larry King)