SINGAPORE, May 26 (Reuters) - Oil prices rose on Tuesday and stocks dithered as investor optimism over an imminent U.S.-Iran peace deal was tempered by new U.S. strikes in the Middle East.
U.S. forces conducted strikes in southern Iran in what was described as defensive action, as Tehran's top negotiator and its foreign minister were in Doha for talks with Qatar's prime minister on a potential deal with Washington to end the three-month-old war.
Also, U.S. Secretary of State Marco Rubio said negotiating a deal with Iran could "take a few days", quashing hopes of an imminent end to the conflict.
The developments sent Brent futures rising more than 2% in Asian trade to $98.21 a barrel.
U.S. West Texas Intermediate crude was up slightly from Monday's last traded price but down 4.9% from Friday's close. There was no settlement on Monday due to the U.S. Memorial Day holiday.
"I'm a bit sceptical... We keep being told there's a deal that's near, but what does the deal look like? That's what's really important. When's the Strait of Hormuz going to open... There's a lot we don't know," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
Stock markets were mixed, with MSCI's broadest index of Asia-Pacific shares outside Japan advancing 0.67%, while Japan's Nikkei shed 0.14%.
Nasdaq futures trimmed earlier gains to trade 0.86% higher, while S&P 500 futures rose 0.66%.
EUROSTOXX 50 futures eased 0.16%, while FTSE futures added 0.2% and DAX futures lost 0.26%.
"The market wants to believe that it's all going to end soon, because the war not ending is quite bad for the world economy. The world economy's had these buffers of running down inventories, but you can't keep running down inventories," said Capurso.
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In Hong Kong, stocks rose as the chipmaking sector's gains helped overcome jitters around Beijing's crackdown on illegal cross-border trading.
The Hang Seng Index was up 0.5%, while on the mainland, China's CSI300 blue-chip index dipped 0.3%.
DOLLAR BACK IN THE RECKONING
In currencies, the dollar steadied on Tuesday on renewed safe-haven demand, though it remained some distance away from a six-week peak hit last week.
The euro fell 0.1% to $1.1633, while the sterling eased 0.13% to $1.3488.
Against the yen, the dollar was flat at 158.94.
Bonds were largely steady after a rout last week on worries that higher energy prices for longer would stoke a resurgence in inflation and prompt rate hikes across both developed and emerging markets.
The yield on the two-year U.S. Treasury note fell nearly 7 basis points to 4.0573%, while the 10-year yield fell more than 6 bps to 4.5083%.
"We are likely to see periodic yield retracements on occasions when geopolitical risks subside, but inflation and fiscal risks are likely to be more sustained," said Eric Robertsen, Standard Chartered's head of global research and chief strategist.
"Commodity supply dislocations will take months to resolve, and fiscal support measures are likely to drive a sustained deterioration in sovereign balance sheets - which will also require increased borrowing in an environment of higher funding costs."
Elsewhere, spot gold was down 1% at $4,525.18 an ounce. [GOL/]
(Reporting by Rae Wee; Editing by Muralikumar Anantharaman)
