Oil prices rallied and equities sank Friday as reports said explosions had been heard in Iran and Syria, fuelling fears of an escalation of the Middle East crisis after last weekend's missile attack on Israel by Tehran.

The reports followed another batch of data indicating the US economy remained in rude health and compounded concerns that the Federal Reserve will hold off cutting interest rates this year or even hike them again.

Traders have been on edge since Saturday's barrage by Iran, which Israel's army chief General Herzi Halevi warned would be met with a response.

Leaders in Tehran said the strike was a legitimate response to a deadly attack on an Iranian embassy building in Damascus that it blames on Israel.

Iran state TV said three blasts had been heard near central Isfahan, the site of a key nuclear facility. Tehran had earlier said it could revise its nuclear policies if Israel threatened to attack its sites.