Portugal Colonial - Oil prices drop following Trump's Iran comments, US stocks rise

Meanwhile, Wall Street's main indices advanced in late morning trading as investors also awaited the Federal Reserve rate decision, although they were mixed elsewhere.

Oil prices initially rose after Iran's supreme leader Ali Khamenei rejected US President Donald Trump's demand for an "unconditional surrender", adding to sharp gains made the previous day.

Six days into the conflict, Khamenei warned the United States would face "irreparable damage" if it intervenes in support of Israel.

But oil prices then fell after Trump spoke later and indicated he was still considering whether the United States would join Israeli strikes and indicated that Iran had reached out to seek negotiations.

"For now at least, the US is not getting involved, if one can believe Trump," said City Index and FOREX.com analyst Fawad Razaqzada.

Despite heightened tensions, "there has been no sense of panic from investors", said David Morrison, market analyst at financial services firm Trade Nation.

"As far as the US is concerned, events are taking place a long way from home," he said.

"But there's also a feeling that investors are betting on a short and sharp engagement, resulting in a more stable position across the Middle East than the one that currently exists."

Of particular concern, however, is the possibility of Iran shutting off the Strait of Hormuz, through which around one fifth of global oil supply is transported.

In Europe, the London stock market rose but Paris and Frankfurt ended the day down. Asian equities closed mixed as well.

- Fed watch -

The Federal Reserve is widely expected to hold interest rates steady on Wednesday, as officials gauge the impact of US tariffs on inflation.

The central bank has ignored calls from Trump to cut borrowing costs as the world's biggest economy faces pressure.

Trump again publicly berated Fed chief Jerome Powell on Wednesday, calling him a "stupid person" for not cutting interest rates.

The Federal Reserve will also release on Wednesday its rate and economic growth outlook for the rest of the year, which are expected to take account of Trump's tariff war.

Weak US retail sales and factory output data on Tuesday rekindled worries about the impact of tariffs on the economy but also provided hope that the Fed would still cut rates this year.

"The Fed would no doubt be cutting again by now if not for the uncertainty regarding tariffs and a recent escalation of tensions in the Middle East," said KPMG senior economist Benjamin Shoesmith.

In a busy week for monetary policy, Sweden's central bank cut its key interest rate on Wednesday to try and boost the country's economy, as it cited risks linked to trade tensions and the escalating conflict in the Middle East.

The Bank of England is expected to keep its key rate steady Thursday, especially after official data Wednesday showed UK annual inflation fell less than expected in May.

The Bank of Japan on Tuesday kept interest rates unchanged and said it would taper its purchase of government bonds at a slower pace, as trade uncertainty threatens to weigh on the world's number four economy.

- Key figures at around 1530 GMT -

Brent North Sea Crude: DOWN 2.0 percent at $74.93 per barrel

West Texas Intermediate: DOWN 2.0 percent at $71.82 per barrel

New York - Dow: UP 0.5 percent at 42,411.50 points

New York - S&P 500: UP 0.4 percent at 6,007.85

New York - Nasdaq Composite: UP 0.5 percent at 19,624.09

London - FTSE 100: UP 0.1 at 8,843.47 (close)

Paris - CAC 40: DOWN 0.4 percent at 7,656.12 (close)

Frankfurt - DAX: DOWN 0.5 percent at 23,317.81 (close)

Tokyo - Nikkei 225: UP 0.9 percent at 38,885.15 (close)

Hong Kong - Hang Seng Index: DOWN 1.1 percent at 23,710.69 (close)

Shanghai - Composite: FLAT at 3,388.81 (close)

Euro/dollar: UP at $1.1530 from $1.1488 on Tuesday

Pound/dollar: UP at $1.3471 from $1.3425

Dollar/yen: DOWN at 144.59 yen from 145.27 yen

Euro/pound: UP at 85.59 pence from 85.54 pence

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C.Cassis--PC