Equities rebounded while oil and safe-haven gold retreated Tuesday as fears of a Middle East conflict abated for now, but investors remained on alert for any escalation after the US assassination of a top Iranian general.
With few major developments in the crisis fuelled by the killing of Qasem Soleimani last week, traders were able to turn their attention back to the global economic outlook and the US-China trade deal signing planned for January 15.
Wall Street provided a positive lead, with all three main indexes reversing early losses to end in the green as traders welcomed strong service sector data from the US, Europe and Britain that provided hope that the worldwide growth slowdown was easing.
Asian markets were broadly higher, with Tokyo ending 1.6 percent up, Hong Kong adding 0.3 percent and Shanghai rising 0.7 percent.
Sydney climbed more than one percent, while Seoul jumped one percent and Singapore put on 0.7 percent. Manila, Mumbai and Bangkok were also up, while Wellington was marginally higher and Taipei eased slightly.
In early trade London rose 0.1 percent, Paris gained 0.4 percent and Frankfurt climbed 0.6 percent.
Observers said the limited impact on markets was mostly because the standoff was not expected to have a massive impact on global growth.
The shift back to riskier assets saw oil prices retreat, having rallied almost seven percent in the previous two days. Gold slipped from six-and-a-half-year highs.
"Putting to one side the heat and noise of the events of the last few days, and in the absence of further violence and escalations, the reality is that very little has changed," said CMC Market analyst Michael Hewson in a note.
- 'Wait-and-see mode' -
But analysts warned that the mood could change in a split second, with Donald Trump warning of a "major retaliation" if Iran carries out any revenge attacks.
"It's wait-and-see mode here," said Steve Chiavarone, at Federated Investors. "How much, if at all, do things escalate with Iran and does it ultimately impact the global economic outlook? Right now, not so much. Could it change? Sure."
Tapas Strickland, at National Australia Bank, added: "The potential for this to spiral into a cycle of retaliation remains and markets will likely remain cautious."
The strike on such a high-profile member of the Iranian regime has also raised the question of when and how -- not if -- Tehran will retaliate, which experts say will likely continue to support crude.
"The US strike in Iraq last week offers up a speculator's delight on the belief that Iran will need to muster up a sufficient response to mobilise local nationalist support," said AxiTrader's Stephen Innes.
"But it's the great unknowns around what form of retaliation will transpire and the unlikelihood of de-escalation that should continue to support the higher risk premiums over the medium term."
He pointed out, however, that there was a lot of production capacity around the world, including US shale, that could prevent prices from soaring.
- Key figures around 0820 GMT -
Tokyo - Nikkei 225: UP 1.6 percent at 23,575.72 (close)
Hong Kong - Hang Seng: UP 0.3 percent at 28,322.06 (close)
Shanghai - Composite: UP 0.7 percent at 3,104.80 (close)
London - FTSE 100: UP 0.1 percent at 7,584.25
Brent Crude: DOWN 65 cents at $68.26 per barrel
West Texas Intermediate: DOWN 52 cents at $62.75
Pound/dollar: DOWN at $1.3160 from $1.3167 at 2140 GMT
Euro/pound: UP at 85.00 pence from 85.02 pence
Euro/dollar: DOWN at $1.1190 from $1.1195
Dollar/yen: DOWN at 108.38from 108.40 yen
New York - Dow: UP 0.2 percent at 28,703.38 (close)