Portugal Colonial - Stocks rally, oil extends losses as Trump fans fresh peace hopes

Traders were also cheered by news that Israel and Lebanon had agreed to launch direct negotiations, fuelling optimism for an end to a conflict that has been a key sticking point in the fragile ceasefire between Washington and Tehran.

While the United States continued a blockade of Iranian ports imposed following failed negotiations in Islamabad at the weekend, the US president told the New York Post that a new round of talks could take place.

"You should stay there, really, because something could be happening over the next two days, and we're more inclined to go there," Trump was quoted as saying in a phone interview with a Post reporter in the Pakistani capital.

Senior Pakistani sources earlier told AFP the country was working to bring the two sides back together, with one saying negotiators were working to extend the current two-week ceasefire.

The comments from Trump provided a fresh boost to equities, which were already rising this week on optimism the six-week conflict, which has sent chills through the world economy, could be close to an end.

After all three main indexes on Wall Street rallied -- with the Nasdaq and S&P 500 back well above pre-war levels and just short of record highs -- Asia followed suit.

Gains were led by Seoul, which was the standout performer before hostilities broke out on February 28 and then became one of the worst.

The Kospi jumped around three percent and was just five percent short of its all-time peak, while Tokyo, Hong Kong, Sydney, Taipei, Singapore and Manila were also well up.

Oil prices dropped, extending a sell-off Tuesday that saw West Texas Intermediate dive around eight percent and Brent more than four percent.

Investors were also cheering the decision of Israel and Lebanon to open direct talks after meeting in Washington, marking a rare diplomatic breakthrough between two countries formally at war for decades.

Lebanon was drawn into the broader war when Hezbollah attacked Israel in support of Iran, its key ally, triggering an Israeli ground invasion.

Washington fears the Israel-Hezbollah conflict could unravel the US-Iran ceasefire.

"Continued pressure alongside hopes of diplomatic engagement... has helped push oil prices below $100 and Treasury yields down, supporting equities and highlighting how sensitive markets remain to developments in the region," wrote Fiona Cincotta at City Index.

"A credible diplomatic off-ramp could further boost risk appetite."

Some observers warn that while the end of the war would be widely welcomed, there were big question marks over what a peace would look like, while crude production would take some time to get back up to capacity.

And on Tuesday the International Monetary Fund said it had cut its 2026 global growth projection, warning that the world economy could be "thrown off course" by war.

On announcing a new forecast of 3.1 percent expansion -- down from its previous 3.3 percent estimate -- Fund chief economist Pierre-Olivier Gourinchas told AFP it was "planning to upgrade growth for 2026 to 3.4 percent" if not for the war.

Still, National Australia Bank's Taylor Nugent added: "Markets were looking past the physical disruption in the Strait to the prospect of talks, with risk assets supported, yields lower and the dollar losing another 0.3 percent on the (dollar index)."

Charu Chanana, chief investment strategist at Saxo, said: "If diplomacy gets another opening, markets can recover confidence quickly.

"If conflict returns first, the next phase could prove broader and more dangerous than the one investors thought had already peaked."

- Key figures at 0230 GMT -

West Texas Intermediate: DOWN 0.8 percent at $90.56 a barrel

Brent North Sea Crude: DOWN 0.3 percent at $94.48 a barrel

Tokyo - Nikkei 225: UP 0.5 percent at 58,162.84 (break)

Hong Kong - Hang Seng Index: UP 1.1 percent at 26,153.23

Shanghai - Composite: UP 0.4 percent at 4,044.10

Euro/dollar: DOWN at $1.1785 from $1.1797 on Tuesday

Pound/dollar: UP at $1.3565 from $1.3564

Dollar/yen: UP at 158.94 yen from 158.84 yen

Euro/pound: DOWN at 86.88 pence from 86.93 pence

New York - Dow Jones: UP 0.7 percent at 48,535.99 (close)

London - FTSE 100: UP 0.3 percent at 10,609.06 (close)

E.Paulino--PC