Global Markets-shares Dip, Oil Edges up as Glimmer of Relief Over Iran War Fades

SINGAPORE/LONDON, March 24 (Reuters) - Global stocks dipped on Tuesday, while oil prices rose in choppy trading, as the relief rally from U.S. President Donald Trump delaying the bombing of Iran's power grid fizzled out, leaving investors with no clarity over the fate of the Middle East war.

U.S. Treasury yields pushed higher and the dollar regained lost ground, in a retracement of the rally that swept markets overnight after Trump added five days to his Saturday ultimatum for Iran to reopen the Strait of Hormuz within 48 hours, citing "productive" talks Tehran.

Much uncertainty remained as the world continues to grapple with an energy shock while Iran denied it was engaged in negotiations with the U.S.

Israeli officials said on Tuesday Trump wants a deal with Iran, but any talks were unlikely to be successful at this point.

Oil headed back towards $100 a barrel, having fallen by as much as 15% on Monday, after Trump's announcement of the delay.

"The underlying situation is still incredibly fragile or flammable," said IG market analyst Tony Sycamore.

"It doesn't seem like all of the parties are on the same page... Trump can talk all he likes, but the Strait (of Hormuz) is closed and it's staying closed until all the Iranians get on the same page, and that's where we've got a problem."

In Europe, the STOXX 600 .STOXX was down 0.4%, after gaining 0.6% in Monday's volatile session. S&P 500 futures ESc1 were down 0.4%, while Nasdaq futures NQc1 fell 0.36%. Shares in Asia ended firmly in the green, albeit below the day's highs.

Iran has launched waves of missiles at Israel, the Israeli military said, while Semafor reported, citing a U.S. official, that the U.S. will continue strikes on Iran, with a pause applying only to attacks on Tehran's energy sites.

With the war raging and shipments of about one-fifth of the world's oil and liquefied natural gas through the Strait of Hormuz still curtailed, oil prices resumed their climb on Tuesday.

June Brent crude futures LCOc2 were up 2% at $98 a barrel, reversing some of their 10% slide from the previous session, while U.S. crude CLc1 rose 3% to $90.7 per barrel.

"The war has resulted in lasting damage to infrastructure, so even if it's over soon energy prices may well remain higher - and bond and equity prices lower - for longer than they otherwise would have been," said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics.

YIELDS RISE, DOLLAR PARES LOSSES

U.S. Treasury yields rose on Tuesday after a sharp fall overnight, as little clarity over an end to the conflict left traders pricing in a more hawkish global interest-rate outlook.

The two-year yield rose as much as 8.5 basis points to a high of 3.916% overnight, before retreating to around 3.882%, up 5 bps on the day, while the benchmark 10-year yield was up 3 bps at 4.368%.

The inflationary pulse from energy has seen investors abandon hope for further monetary easing globally and swing to pricing in rate hikes across most developed nations.

The U.S. Federal Reserve 0#USDIRPR is seen leaving rates on hold this year, with futures pointing to a small chance of a hike, while the Bank of England 0#GBPIRPR and European Central Bank 0#EURIRPR are widely expected to raise rates.

"Unless the Strait (of Hormuz) is reopened very quickly, we are still more likely than not to see higher interest rates and a meaningful increase in oil importers' costs in the coming weeks," said Kit Juckes, head of FX strategy at Societe Generale.

The U.S. dollar, meanwhile, rebounded from Monday's lows, pushing the euro EUR down 0.27% to $1.1581, while sterling GBP slid 0.5% to $1.339.

In precious metals, spot gold XAU steadied around $4,400 an ounce. Before Trump's announcement on Monday, it had traded at four-month lows below $4,100, on expectations of higher-for-longer U.S. rates.