Crude oil prices surged, stocks fell around the world and the dollar gained on Friday as images of street battles in Egypt riveted investors and raised concerns the protests will intensify and spread across the Middle East.

President Hosni Mubarak imposed curfews across Egypt as media coverage of growing unrest further unsettled global financial markets where investors had been accelerating moves into riskier assets. Stock selling snowballed as video footage of street battles with Egyptian police and security forces blanketed television and the web.

The crisis in Egypt as well as the significance of a government shutting down the Internet for the entire country is causing major nervousness in market participants that have been long equities in front of the weekend, said Linda Raschke, a partner with Chicago based brokerage firm FuturePath Trading.

There is a flight to dollars as well as a flight out of equities. The major benefiting market to the upside is crude oil, capitalizing on the implications for regional instability, she added.

U.S. crude oil prices surged more than 4 percent.

Traditional safe-haven investments U.S. Treasury debt, gold and Swiss francs benefited from the sudden shift in market sentiment. Gold prices jumped 2.5 percent.

Gold is benefiting more than bonds at this particular point, said Frank McGhee, head precious metals trader of Integrated Brokerage Services in Chicago. People are looking at gold as a safe haven in times like this, and it's certainly showing it.

On Wall Street, shares fell from 29-month highs and the CBOE Volatility Index, or VIX, a broad measure of market anxiety, soared more than 22 percent.

Disappointing results by high-profile companies including and Ford Motor Co added to the negative sentiment from the turmoil in Egypt.

Energy stocks declined despite the surge in oil prices as uncertainty over the weekend developments in Egypt and anemic growth in Chevron's oil reserves kept investors jittery.

The Dow Jones industrial average dropped 141.45 points, or 1.18 percent, to 11,848.38. The Standard & Poor's 500 Index slid 18.39 points, or 1.42 percent, to 1,281.15 and the Nasdaq Composite Index declined 65.57 points, or 2.38 percent, to 2,689.71.

The market response to earnings in Microsoft, Amazon and Ford is disappointing, said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. Then you throw in Egyptian riots possibly spreading... we're going into a weekend where anything is possible in Egypt, he said.

In commodities, U.S. light sweet crude oil rose $3.64, or 4.25 percent, to $89.28 per barrel, and spot gold prices rose $29.64, or 2.26 percent, to $1,340.70.

Benchmark 10-year Treasury note yields dropped 0.05 percentage point to 3.34 percent.

The political unrest overshadowed economic data in the U.S. that showed the nation's recovery was on track.

Though growth fell short of expectation, U.S. gross domestic product data for the final quarter of 2010 showed the biggest gain in consumer spending in more than four years with strong exports offering the clearest signals yet that a sustainable recovery is under way.

The market was buffeted as Ford tumbled after reporting a steep drop in its quarterly profit after a charge for debt payments. Ford shares fell more than 12 percent and rival automaker General Motors Co lost 5.4 percent.

Ford results were pretty ugly, said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania. Ford shares had risen almost 12 percent from the start of January to the Thursday close. Inc's revenues missed expectations late Thursday. Shares of the online retailer fell 8.6 percent.

In Europe, the FTSEurofirst 300 index of leading European shares fell 0.95 percent, falling into the close of trading as unrest in Egypt boosted worry about the Suez Canal, crucial to Europe's imports of oil and Asian goods.

Asia's Japan's Nikkei average ended down 1.1 percent -- still weighed by a sovereign debt rating downgrade -- while the MSCI world equity index dropped 1.3 percent.

Emerging market stocks fared worse, falling 1.5 percent.

Israeli ADR's tumbled, as the country is the most liquid market within the Middle East and potentially faces the biggest security threat from Middle East instability. The BNY Mellon index of leading Israeli ADRs slid 2.3 percent.

In currencies, the dollar was up against a basket of major trading-partner currencies, with the U.S. Dollar Index up 0.55 percent at 78.157. The euro was down 0.87 percent at $1.3607.

If the Mubarak government falls, the next few days could see some heavy U.S. dollar and Swiss Franc safe-haven buying, said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

Against the Japanese yen, the dollar declined 0.93 percent at 82.09 yen.

(Additional reporting by Ellen Freilich, Rodrigo Campos and Chuck Mikolajczak in New York, and Doris Frankel in Chicago; Editing by Leslie Adler)