Wall Street fell from a record high on Friday after a US air strike in Iraq ratcheted up tensions in the Middle East, while a bigger-than-expected contraction in the US manufacturing sector again fanned fears of slowing economic growth.

Demand for safe-haven assets soared as Iran vowed revenge for the killing of Qassem Soleimani, head of its elite Quds Force, in the air strike that was authorized by President Donald Trump.

Bank of America Corp and Citigroup Inc fell more than 1% as the news sent benchmark bond yields to their lowest level since Dec. 12. Nine of the 11 major S&P 500 sectors were in the red. "The sharp escalation in tensions related to the Middle East is certainly driving the trading narrative for US stocks," said Peter Kenny, founder of Kenny's Commentary LLC in New York.

"Does it mean continued escalation in tension (and) will it end up derailing the US equity rally? I don't think so, but it's worth considering."

The three main stock indexes had closed at record highs on Thursday as fresh monetary stimulus by China added to investor optimism over trade.

But denting sentiment on Friday, data showed the US manufacturing sector contracted in December by the most in more than a decade.

At 11:30 a.m. ET, the Dow Jones Industrial Average was down 232.15 points, or 0.80%, at 28,636.65, while the S&P 500 was down 21.13 points, or 0.65%, at 3,236.72. The Nasdaq Composite was down 63.86 points, or 0.70%, at 9,028.33.

The CBOE Volatility index, an options-based gauge of investor anxiety, hit its highest level since Dec. 10.

Safe-haven assets such as gold surged after the air strike, boosting shares of miners Newmont Goldcorp, Kirkland Lake and Barrick Gold between 0.4% and 1.1%.

Weapons makers Lockheed Martin Corp and Northrop Grumman Corp were the biggest boost to the S&P 500 index, gaining more than 3% after the attack.