US and European stocks reversed on Monday as oil prices surged over fears hostilities could resume in the weeks-long Middle East war after Iran closed the Strait of Hormuz following its brief reopening.

Investors were on edge approaching the end of the US-Iran ceasefire, with Washington saying it will send a delegation to Pakistan for a new round of talks "soon" and Iran saying it had yet to decide whether to attend.

"The market mood is very different at the start of the week compared to Friday," said Kathleen Brooks, research director at trading group XTB.

Crude had plunged on Friday after the Islamic republic said it would again allow ships to pass through the Strait of Hormuz, through which a fifth of global oil and liquefied natural gas usually passes.

But world oil prices bounced on Monday as Iran closed the waterway and said the US blockade and seizure of an Iranian cargo ship breached the two-week ceasefire.

US crude jumped 6.9 percent to settle at US$89.61 a barrel and Brent rose to settle at US$95.48 per barrel, up 5.6 percent on the day.

"Renewed attacks on commercial vessels in the Strait of Hormuz increased fears of supply disruptions and raised the risk of a broader escalation in hostilities between the US and Iran," said Trade Nation analyst David Morrison.

"Uncertainty also remains over whether negotiations in Islamabad will proceed after Iran said it would not attend talks while the blockade remains in place," he added.

Wall Street's main stock indices dipped, with the S&P 500 and Nasdaq edging down from record closes.

While US investors are wary over what happens next, "they are afraid to step away from the market because we know that if a deal is announced, the market's going to go up very quickly," said Jack Ablin of Cresset Capital Management.

The S&P 500 fell 0.2 percent, to 7,109, the Dow shed 0.01 percent, to 49,442, while the Nasdaq was down 0.3 percent, to 24,404.

Communication services was the worst-performing sector, as Meta was down 2.6 percent to snap a nine-session winning streak, its longest since October.

Netflix fell 2.6 percent to also weigh on the sector, and has fallen about 12 percent since announcing its quarterly results and the departure of co-founder Reed Hastings last week.

Investors will look to assess the impact of the Iran war on corporate earnings and on the broader economy, with companies including Lockheed Martin and IBM scheduled to report later this week.

Tesla will kick off results from the so-called "Magnificent Seven" group of megacap ⁠stocks on Wednesday.

The losses were sharper in Europe. Frankfurt dropped 1.2 percent, Paris shed 1.1 percent and London gave up 0.6 percent.

"European indices presented a truer picture of the market mood, with investor wariness and weariness amid the continuing tensions in the Middle East," said AJ Bell investment director Russ Mould before trading began in New York. (Agencies)



Edited by Cecil Wong