Portugal Colonial - Oil prices bounce back on Iran war escalation

However, lingering hopes that a deal to end the seven-week crisis continued to support equities, even as Tehran said it was not currently planning to attend peace talks.

Crude plunged while US and European stocks rallied Friday after the Islamic republic said it would again allow ships to pass through the waterway -- through which a fifth of global oil and LNG gas usually passes -- citing the ceasefire between Israel and Lebanon.

President Donald Trump told AFP that "we're very close to having a deal", adding that there were "no sticking points at all" left with Tehran, though Iran quickly pushed back, saying its stockpile of enriched uranium would not be transferred "anywhere".

US benchmark West Texas Intermediate dived more than 11 percent and Brent shed nine percent.

But both contracts jumped sharply Monday, days before the end of a two-week ceasefire, owing to the ongoing US blockade and after an American destroyer fired on and seized an Iranian ship that tried to evade it. Tehran warned it would retaliate.

The blockade of Iranian ports has been a significant sticking point in negotiations between the two countries, and state broadcaster IRIB cited Iranian sources as saying "there are currently no plans to participate in the next round of Iran-US talks" in Pakistan.

The Fars and Tasnim news agencies had earlier cited anonymous sources as saying "the overall atmosphere cannot be assessed as very positive", adding that lifting the US blockade was a precondition for negotiations.

WTI jumped more than seven percent at one point, while Brent piled on more than six percent.

There has so far been only a single, 21-hour negotiating session held in Islamabad on April 11 that ended inconclusively, though groundwork for fresh talks continued afterwards.

"We're offering a very fair and reasonable DEAL, and I hope they take it," Trump said in a social media post Sunday, while also renewing his threats against Iran's infrastructure if a deal is not made.

But Iran's Revolutionary Guards warned that any attempt to pass through the strait without permission "will be considered cooperation with the enemy, and the offending vessel will be targeted".

Foreign ministry spokesman Esmaeil Baqaei said the blockade was "a violation" of the ceasefire.

Still, equities rose, tracking another record close for the S&P 500 and Nasdaq in New York.

Tokyo, Seoul and Taipei led the gains thanks to a resumption of the tech rally that characterised markets before the war began on February 28.

Hong Kong, Shanghai, Wellington and Manila were also well up.

The dollar, which has been a key safe haven during the crisis and fell sharply Friday, advanced against its main peers.

Chris Weston at Pepperstone said traders were assessing "whether the ceasefire can be salvaged through this week’s diplomatic talks, with recalibration on the probability of military escalation".

"Trump's weekend social media posts raised the prospect of military re-escalation, though given the bar for this response is now set higher, some viewed this as a pure hawkish negotiating tactic ahead of this week’s diplomatic talks," he added.

"Market participants understand that the path to a formal agreement (is) unlikely to be linear and remains vulnerable to sudden changes, so market players won't be wholly surprised by a sentiment shift.

"However, without a comprehensive agreement on Iran’s nuclear programme, the ceasefire remained fragile."

- Key figures around 0230 GMT -

West Texas Intermediate: UP 5.3 percent at $88.31 a barrel

Brent North Sea Crude: UP 4.8 percent at $94.67 a barrel

Tokyo - Nikkei 225: UP 1.0 percent at 59,045.45 (break)

Hong Kong - Hang Seng Index: UP 0.5 percent at 26,281.92

Shanghai - Composite: UP 0.6 percent at 4,073.76

Euro/dollar: DOWN at $1.1757 from $1.1776 on Friday

Pound/dollar: DOWN at $1.3500 from $1.3530

Dollar/yen: UP at 158.89 yen from 158.49 yen

Euro/pound: UP at 87.09 pence from 87.02 pence

New York - Dow Jones: UP 1.8 percent at 49,447.43 (close)

London - FTSE 100: UP 0.7 percent at 10,667.63 (close)

P.L.Madureira--PC