World oil prices climbed on Tuesday, once more closing in on US$100 a barrel, and stock markets mostly retreated owing to a flare-up in the Middle East war.

The latest jump in oil prices came as the Houthis said Saudi Arabia retaliated with strikes on Tuesday after the group targeted oil facilities as part of an effort to seize territory near the Bab al-Mandeb Strait, an increasingly important route for Saudi oil after Iran blockaded the Strait of Hormuz.

A note from Eurasia Group said oil "will likely remain within an US$85-US$105 per barrel range" owing to "little chance of a resolution to any of the relevant conflicts."

The price of Brent crude, the benchmark international contract, rose on Tuesday to US$97.92 per barrel.

Major US indices spent most of the day in the red before closing firmly lower. The S&P 500 lost 0.6 percent.

"Escalating geopolitical tensions in the Middle East are dampening investor sentiment on Wall Street, as rising crude prices place inflation risk at the forefront of the fixed-income conversation," said a note from Interactive Brokers' Jose Torres that also flagged a potential US Federal Reserve interest rate hike as a risk.

This week's calendar includes key US reports on consumer and wholesale inflation that will be closely scrutinised by the Fed.

Average diesel prices in the world's biggest economy hit a record high on Monday, according to the motorists' association AAA.

US Treasury bond yields have also moved higher, reflecting worries about inflation, as well as the drag from heavy issuance of corporate and government debt.

"Eventually higher interest rates do start to catch up with equities as well," said Natalia Lojevsky, managing director of CIFC Asset Management.

"The stock market has been incredibly resilient in being able to shrug off this global march higher in yields, and the strong earnings story has been underpinning that," Lojevsky said. "But at some point, higher interest rates do start to bite."

The yen spiked as investors ramped up bets on the Bank of Japan hiking interest rates, which dragged down stocks in Tokyo.

"Japan's Nikkei is the worst performing global (stocks) index... as a rising yen is bad news for Japanese exporters," said Kathleen Brooks, research director at XTB.

The yen on Tuesday briefly hit 152.89 against the US dollar, within distance of the 152.10 touched in February. It later traded at about 154 yen to the dollar.

US President Donald Trump on Monday threatened to block US sales of Canadian plane manufacturer Bombardier, alleging "unjust and unfair" bilateral trade provisions as he escalates a tariff war between the neighbouring countries.

Canada's retaliatory tariffs on billions of dollars in US products meanwhile took effect on Tuesday.

On the corporate front on Tuesday, shares in pharmaceutical giant Novartis slumped more than 10 percent after the Swiss group said trial results to treat a neurological disease failed to meet expectations.

French AI firm Mistral meanwhile saw its value jump to 21 billion euros after it raised three billion euros in what it called the largest-ever European tech fundraising.

The S&P 500 fell 0.6 percent, to 7,674, the Dow fell 1.2 percent, to 52,786, the Nasdaq fell 0.3 percent, to 26,421. (AFP)



Edited by Robert Kemp