Oil prices dipped and stocks mostly edged higher Tuesday as investors held out hope that despite conflictual rhetoric there was scope for a deal to end the Middle East war and reopen the Strait of Hormuz to oil and gas shipments.
Iran had not yet sent a delegation to neighbouring Pakistan for a new round of peace talks with the United States, even as the two-week ceasefire is set to expire by Wednesday.
Brent North Sea crude, the international benchmark, was largely flat after surging the previous day after Iran reclosed the Strait of Hormuz.
Wall Street's main stock indices rose as trading got underway in New York, bolstered by better-than-expected March retail sales data even as energy prices began to hit consumers.
In afternoon trading in Europe, London and Paris dipped while Frankfurt was flat. Asian markets closed higher.
"There is a reluctance for investors to price in the worst-case scenario for the conflict in the Middle East, and there is optimism within the market that the US/Iran ceasefire will be extended," said Kathleen Brooks, research director at trading group XTB.
President Donald Trump exuded confidence Tuesday in an interview with CNBC, touting the strong negotiation position of the United States as his envoys prepared for talks with Iran in Pakistan.
The White House said Vice President JD Vance was ready to return to Pakistan for new negotiations to end a conflict that has sent crude soaring and revived inflation fears.
However, Iran's position remained uncertain as it accused Washington of violating their fragile truce through its blockade of the country's ports and the seizure of a ship.
Trump has similarly accused Tehran of violating the ceasefire by harassing vessels in the Strait of Hormuz, the transit passage for about one-fifth of global oil.
Despite the uncertainty, analysts said investors remained largely upbeat that the two sides would eventually come to a deal that will reopen the strategic strait.
"Oil prices remained below $100 a barrel which suggests cautious optimism that the Middle East conflict won't intensify," said Russ Mould, investment director at AJ Bell.
"However, the longer oil remains in the 90s (dollar per barrel) range... the higher the chance of an inflationary shock and a wobble to global economic activity," he said.
While the spike in fuel prices has raised concerns it will weigh on consumer spending, a key component of US economic growth, data showed that March retail sales still rose 0.6 percent month-on-month when excluding gasoline sales.
Bret Kenwell, US investment analyst at eToro, said the data "echoes what we heard from the big banks last week, with management teams largely pointing to a resilient consumer despite soaring gas prices and a barrage of geopolitically charged headlines".
With US stocks having recovered from pre-war losses and sitting near record highs, Kenwell said that might not only reflect hopes for further de-escalation in the Middle East, "but it may also signal growing optimism around earnings".
If US companies continue to post solid first-quarter earnings "it could reinforce investors' confidence that this rally still has room to run", he added.
Investors are also following the confirmation hearings for Kevin Warsh, Trump's choice to lead the Federal Reserve.
His testimony could shed light on the direction of US interest rates in the coming months, as the world's largest economy faces inflation risks and headwinds to growth.
- Key figures around 1330 GMT -
Brent North Sea Crude: DOWN 0.3 percent at $95.22 a barrel
West Texas Intermediate: DOWN 0.2 percent at $87.23 a barrel
New York - Dow Jones: UP 0.5 percent at 49,706.29 points
New York - S&P 500: UP 0.2 percent at 7,125.89
New York - Nasdaq Composite: UP 0.3 percent at 24,467.29
London - FTSE 100: DOWN 0.4 percent at 10,562.45
Paris - CAC 40: DOWN 0.5 percent at 8,287.47
Frankfurt - DAX: FLAT at 24,422.98
Tokyo - Nikkei 225: UP 0.9 percent at 59,349.17 (close)
Hong Kong - Hang Seng Index: UP 0.5 percent at 26,487.48 (close)
Shanghai - Composite: UP 0.1 percent at 4,085.08 (close)
Euro/dollar: DOWN at $1.1767 from $1.1786 on Monday
Pound/dollar: DOWN at $1.3521 from $1.3535
Dollar/yen: UP at 159.07 yen from 158.88 yen
Euro/pound: DOWN at 87.04 pence from 87.07 pence
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