Oil prices rallied and global stocks mostly fell Wednesday on fears that the Israel-Hamas conflict could spill over into a regional war after a strike at a Gaza hospital dealt a blow to President Joe Biden's diplomatic drive.

Crude futures briefly vaulted three percent higher as fears grew over broadening unrest that could destabilize the crude-rich Middle East, with some analysts predicting a possible return to $100 oil.

Gold hit a four-week peak as investors sought the safe haven investment, with the dollar also picking up as investors sought refuge.

"Last night's explosion at a Gaza hospital, which killed hundreds, has raised the stakes of the conflict and, according to some analysts, reduced the chances of a negotiated solution," said ActivTrades analyst Ricardo Evangelista.

He estimated there was now a higher probability that other countries in the region, such as Iran, could end up involved in the dispute.

"This scenario would almost certainly affect the global oil supply and could drive the price of the barrel to levels above the $100 mark," he added.

World stock markets had enjoyed a healthy run Tuesday on optimism the crisis could be contained even as Israeli Prime Minister Benjamin Netanyahu prepared for a ground offensive in the blockaded territory.

Biden had planned to visit Israel on Wednesday to meet with Netanyahu and then travel on to Jordan for a meeting with Jordanian King Abdullah II, Palestinian leader Mahmud Abbas and Egyptian President Abdel Fattah al-Sisi on finding possible ways to de-escalate the conflict.

But news that at least 200 people had been killed in the rocket strike on the hospital saw the Arab leaders cancel the summit in Amman and fanned concerns of a regional conflagration. Iran this week warned that a wider war was becoming "inevitable".

Gaza's health ministry has blamed Israel for the hospital explosion, but Israel insists it was caused by a rocket misfired by Hamas ally Islamic Jihad.

There was an increase in fighting between Israeli troops and Tehran-backed Hezbollah on the Lebanon border.

Biden said Wednesday the United States would work with Israel to prevent civilian deaths as it pounds Gaza. He also backed Israel's stance blaming Palestinian militants for the rocket strike on a hospital.

"Whoever turns out to be responsible the facts no longer matter given that most people have already made up their minds, sending gold prices to four-week highs, and oil prices to two-week highs," said Michael Hewson at CMC Markets.

European equity markets fell across the board and London was also dented by news of stubbornly high UK inflation.

Wall Street's main indices were firmly lower in late morning trade.

Asian markets mostly dropped, with Hong Kong, Shanghai, Singapore, Mumbai, Jakarta, Taipei and Manila all down.

Sydney, Seoul, Wellington and Bangkok edged up. Tokyo was flat.

China growth 

Forecast-busting economic growth data out of China provided a shaft of light for traders.

The 4.9 percent third-quarter expansion was slower than the previous three months but much better than analysts' estimates, lifting hopes that the world's number-two economy was seeing some stabilization after a difficult year.

The figures were helped by a healthy jump in retail sales, suggesting the country's consumers are regaining a little confidence, though officials continue to face calls for more stimulus to kickstart the economy.