Portugal Colonial - Crude extends gains, most stocks drop as Mideast hopes dim

While soft US data this month has eased concerns that the Federal Reserve will hike interest rates soon, traders still expect inflation to remain high for some time as the Middle East crisis drags on and crude stays stuck around $90 a barrel.

That has pushed up long-term Treasury yields to levels not seen since June 2007 -- just before the global financial crisis exploded -- compounded by rising US borrowing and massive corporate bond issuance to fund AI investments.

The chances of an agreement between Washington and Tehran remain thin after Donald Trump said he would not extend a 60-day truce -- part of a June memorandum of understanding -- and Iran called it "irrelevant" because the United States had violated it early on.

The US president's envoy and son-in-law, Jared Kushner, said the two sides were having "very positive and active conversations" but noted that "there's really not a lot of trust between America and Iran after all these years".

"President Trump is going to be very patient... he doesn't want to rush to a deal," Kushner told Fox News.

"He'll make the right deal when the right deal is ready," he said.

Trump said earlier Iranian officials "want to make a deal, but they're not going to make the kind of a deal that I feel is necessary".

He also threatened to bomb Oman if it "gets in the way" of an agreement, referring to ongoing talks between Muscat and Tehran on control of the Strait of Hormuz.

Washington appears happy to play a long game, which investors fear could mean prices will stay higher for some time.

Treasury Secretary Scott Bessent threatened last week to hit Tehran with economic isolation "like the world has never seen before", adding that new measures were expected next week.

That came after Trump had said "we are low-keying it", adding that "we are just watching Iran with its huge inflation and the fact they have no money".

Both main crude contracts rose on Tuesday, following gains of more than two percent the previous day, with Brent sitting above $91.

Equities mostly fell following Wall Street's losses.

Tokyo was off more than two percent, while Seoul and Taipei were down more than one percent. Sydney, Singapore and Mumbai were also lower.

However, Hong Kong, Shanghai, Manila, Wellington and Jakarta rose.

London edged higher but Paris and Frankfurt retreated.

"For weeks, investors had been willing to treat the Iran war, oil volatility and the pressure building in the long end of the Treasury curve as separate irritants," said Stephen Innes, global strategist at Quintex Intel.

"Diplomacy was supposed to contain the geopolitical risk, oil was supposed to remain manageable, and strong earnings were supposed to keep the equity engine turning.

"That calculus becomes less comfortable once those risks begin to converge."

- Key figures at around 0810 GMT -

West Texas Intermediate: UP 0.6 percent at $85.01 per barrel

Brent North Sea Crude: UP 0.2 percent at $91.02 per barrel

Tokyo - Nikkei 225: DOWN 2.5 percent at 67,460.73 (close)

Hong Kong - Hang Seng Index: UP 0.1 percent at 25,471.15 (close)

Shanghai - Composite: UP 0.2 percent at 3,990.30 (close)

London - FTSE 100: UP 0.1 percent at 10,735.32

Euro/dollar: DOWN at $1.1575 from $1.1579 on Monday

Pound/dollar: DOWN at $1.3529 from $1.3545

Dollar/yen: UP at 159.70 yen from 159.46 yen

Euro/pound: UP at 85.56 pence from 85.50 pence

New York - DOW: DOWN 0.5 percent at 53,459.78 (close)

V.F.Barreira--PC