Global stock and bond markets have steadied after US President Donald Trump paused a planned attack on Iran and said there was a good chance of a nuclear deal, sending oil prices lower.
Trump said on Monday he had halted a planned resumption of attacks against Iran to allow time for negotiations to take place on a deal to end the war, after Tehran sent a new peace proposal to Washington.
He subsequently said there was a "very good chance" the US could reach an agreement with Iran to prevent Tehran from obtaining a nuclear weapon.
Investors remained cautious, after being rattled in the previous session by a weekend drone strike in the United Arab Emirates.
European stocks rose 0.7 per cent in early trading on Tuesday, further recovering ground lost on Friday when they dropped 1.5 per cent as bond market jitters spread to equities.
Futures for the US S&P 500 were little changed after the index flatlined on Monday following a 1.2 per cent drop on Friday.
"We've seen a lot of back and forth already," said Fabien Yip, a market analyst at IG.
"Until we actually see real action happening (in the Strait of Hormuz), whereby ships are passing through safely and we see a material rebound in the numbers of traffic going through in the Strait, I think the market in general is shrugging off the commentary from either side."
Brent crude futures fell 1.4 per cent to $US110.50 a barrel on the back of Trump's comments, while US crude was flat at $US108.70 per barrel. Both remained more than 50 per cent above their pre-war levels.
MSCI's broadest index of Asia-Pacific shares outside Japan was down more than one per cent, while Japan's Nikkei eased 0.4 per cent.
The all-important artificial intelligence trade will be tested by earnings from chipmaker Nvidia that are due on Wednesday, with expectations sky-high for the world's most valuable company.
The fall in oil prices helped stem a steep sell-off in global bonds on Tuesday, although worries remain about any lasting inflationary shock from the Iran war.
Yields on the benchmark 10-year US Treasury note eased from a more than one-year high above 4.63 per cent to 4.597 per cent.
Japanese and European government bond yields - which have also shot higher in the past week - also fell, with British yields dropping the most. Yields move inversely to prices.
G7 finance ministers acknowledged mounting concerns over public debt and bond market volatility as they met in Paris.
Markets are now pricing in rate hikes from major central banks in 2026 on expectations policymakers will have to tighten policy to combat a resurgence in inflation driven by higher-for-longer energy prices.
In foreign exchange, the dollar has benefited from safe-haven demand since the onset of the war and was up 0.1 per cent at 159.04 yen, putting traders on alert for any intervention from Tokyo to shore up its ailing currency.
The euro was down 0.2 per cent at $US1.16.
Sterling similarly fell 0.2 per cent to $US1.34.
