Wall Street stocks finished sharply lower on Thursday, reversing course on a rise in oil prices blamed on worries over the Middle East.

Analysts attributed the climb in crude to multi-month highs to headlines about Israel boosting its defences against a potential Iran strike and sharper US criticism of Israel's handling of the Gaza war.

The Dow Jones finished down 1.4 percent at 38,596, a drop of about 825 points from its session peak.

The S&P 500 fell 0.7 percent to 5,205, while the Nasdaq gave up 1.0 percent to 16,240.

Stocks had opened the day higher and appeared poised for a rebound after a sluggish start to the second quarter.

But the rise in oil prices in the context of worsening geopolitical tensions came in a "market that's been looking for a reason to sell off," said Art Hogan of B Riley Financial.

Losses were broad-based with all 11 sectors of the S&P 500 in the red.

An exception was defence-related stocks such as Lockheed Martin, General Dynamics and Northrop Grumman, which advanced.

Levi Straus surged 12.4 percent after reporting better than expected results. Chief Executive Michelle Gass described the company's direct-to-consumer efforts as on track.

Ford finished 3.2 percent lower after announcing plans to ramp up investments in hybrid vehicles and pushed back production on some new larger electric vehicles to 2027 from 2025.

The move, the latest by the US carmaker to slow its EV rollout, had initially lifted shares. (AFP)