World markets: Asia stocks attempt a rally amid Middle East tensions

SYDNEY: Asian shares rebounded on Tuesday as a day passed without a new escalation in the Middle East and Wall Street erased early losses to end in the black as tech stocks climbed. Oil surrendered some hefty gains as many doubted Iran would strike back in a way that would disrupt supplies and its own crude exports.

Brent crude futures stood at $68.91 a barrel, having been as high as $70.74 at one stage, while U.S. crude fell 32 cents to $62.95. Gold held firm at $1,563.50, after scaling a near seven-year peak of $1,579.72 overnight.

MSCI`s broadest index of Asia-Pacific shares outside Japan added 0.3%, after a 0.7% drop in the previous session. Japan`s Nikkei edged up 0.5% and South Korea 0.6%. E-Mini futures for the S&P 500 held steady.

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Shares had fallen sharply on Monday as Iran and the United States traded threats after a U.S. airstrike killed a top Iranian commander.

The mood calmed a little as the session passed with no new aggression. Instead, there was much confusion when the U.S, military wrote to Iraq on Monday saying it would pull out of the country, a letter seen by Reuters showed.

Yet U.S. Defense Secretary Mark Esper told Pentagon reporters that no decision had been made and the military said the letter was only a poorly worded draft. Wall Street chose to hope for the best and the Dow rose 0.24%, while the S&P 500 gained 0.35% and the Nasdaq 0.56%.

Surveys of service sectors out overnight showed some improvement in the United States, UK, and EU, stirring speculation the closely-watched ISM measure of U.S. services due later Tuesday will also show strength.

"We think the longest US expansion on record still has plenty of legs," said Tom Porcelli, chief U.S. economist at RBC Capital Markets. "To be sure, Iran adds an additional layer of complexity."

"But while the risk of conflict has increased, the reality is this is likely to be limited to proxy skirmishes," he argued. "The risk of a "hot" conflict seems low as Iran is unlikely to respond in such a way that risks a significant escalation from the United States."

The calmer mood saw the yen lose much of its safe-haven gains, with the dollar bouncing to 108.37 yen from a low of 107.75 hits on Monday.

The euro edged up to $1.1195 , but faces stiff chart resistance around $1.1240, while sterling made gains to $1.3170 on better economic data at home.

Against a basket of currencies, the dollar had drifted off to 97.618 <.DXY> but stayed above the recent six-month trough of 96.355.