Portugal Colonial - Oil prices rally, stocks slide as traders track Israel-Iran crisis

Investors' optimism the previous day that the conflict would not spread throughout the Middle East gave way to fears of further escalation as the conflict entered its fifth day.

"Middle East tensions are showing no signs of easing back, putting investors on high alert," said Russ Mould, investment director at AJ Bell.

Trump said he was aiming for a "real end" to the conflict, not just a ceasefire after he departed the G7 summit in Canada.

"Iran should have signed the 'deal' I told them to sign," he said on social media, referring to nuclear talks that were taking place.

European equities struggled, with Paris and Frankfurt stocks both shedding over one percent, while London also retreated.

In Asia, Hong Kong fell, while Shanghai was flat and Tokyo advanced.

Despite mounting calls to de-escalate, neither side has backed off from the missile blitz that began Friday, when Israel targeted Iranian nuclear and military facilities.

Oil prices climbed around two percent on Tuesday after swinging between gains and losses since Friday's initial surge.

But gains were tempered after the International Energy Agency said in its 2025 report that global demand would fall slightly in 2030 for the first time since the start of the Covid pandemic in 2020.

"We don't expect high oil prices to be with us for a very long time," said IEA executive director Fatih Birol.

He added that the IEA is "monitoring the situation" and is "ready to act" in the case of a supply disruption.

"There are a lot of eyes on the oil markets -- not just for geopolitical reasons but for their broader economic impact," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

"Energy prices remain a crucial piece of the inflation puzzle, and falling oil had been a cornerstone of the US President’s pressure campaign to nudge the Fed toward rate cuts," he added.

Investors are looking ahead to the US Federal Reserve's decision on Wednesday, with policymakers expected to hold interest rates.

Dealers also kept tabs on the G7 summit, where world leaders pushed back against Trump's trade war, arguing it posed a risk to global economic stability.

Britain, Canada, Italy, Japan, Germany and France called on the president to reverse course on his plans to impose even steeper tariffs on countries across the globe next month.

Trump managed to sign documents with UK Prime Minister Keir Starmer to confirm an agreement over trade with Britain.

On currency markets, the yen edged up against the dollar after the Bank of Japan stood pat on interest rates and said it would slow the tapering of its bond purchases.

- Key figures at around 1050 GMT -

Brent North Sea Crude: UP 2.0 percent at $74.68 per barrel

West Texas Intermediate: UP 1.8 percent at $73.07 per barrel

London - FTSE 100: DOWN 0.4 percent at 8,836.05 points

Paris - CAC 40: DOWN 1.0 percent at 7,665.05

Frankfurt - DAX: DOWN 1.2 percent at 23,421.37

Tokyo - Nikkei 225: UP 0.6 percent at 38,536.74 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 23,980.30 (close)

Shanghai - Composite: FLAT at 3,387.40 (close)

New York - Dow: UP 0.8 percent at 42,515.09 (close)

Euro/dollar: UP at $1.1568 from $1.1562 on Monday

Pound/dollar: DOWN at $1.3559 from $1.3579

Dollar/yen: DOWN at 144.67 yen from 144.79 yen

Euro/pound: UP at 85.32 pence from 85.12 pence

L.Carrico--PC