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Asia stocks rebound as Iran anxiety ebbs

Wayne Cole
The MSCI of Asia-Pacific shares outside Japan has added 0.3 per cent

Asian shares have rebounded after a day without a new escalation in the Middle East while Wall Street has erased early losses to end in the black as tech stocks climbed.

Oil surrendered some hefty gains on Tuesday as many doubted Iran would strike back in a way that would disrupt supplies and its own crude exports.

Brent crude futures stood at $US68.91 a barrel, having been as high as $US70.74 at one stage, while US crude fell 32 cents to $62.95.

Gold held firm at $1,563.50, after scaling a near seven-year peak of $1,579.72 overnight.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3 per cent, after a 0.7 per cent drop the previous session. Japan's Nikkei edged up 0.5 per cent and South Korea 0.6 per cent.

E-Mini futures for the S&P 500 held steady.

Shares had fallen sharply on Monday as Iran and the United States traded threats after an US air strike killed a top Iranian commander.

The mood calmed a little as the session passed with no new aggression.

Instead there was much confusion when the US military wrote to Iraq on Monday saying it would pull out of the country, a letter seen by Reuters showed.

Yet Defense Secretary Mark Esper told Pentagon reporters no decision had been made and the military said the letter was only a poorly worded draft.

Wall Street chose to hope for the best and the Dow rose 0.24 per cent, while the S&P 500 gained 0.35 per cent and the Nasdaq 0.56 per cent.

Surveys of service sectors out overnight showed some improvement in the United States, UK and EU, stirring speculation the closely-watched ISM measure of US services due later on Tuesday will also show strength.

"We think the longest US expansion on record still has plenty of legs," said Tom Porcelli at RBC Capital Markets. "To be sure, Iran adds an additional layer of complexity."

"But while the risk of conflict has increased, the reality is this is likely to be limited to proxy skirmishes," he argued.

"The risk of a "hot" conflict seems low as Iran is unlikely to respond in such a way that risks a significant escalation from the United States."

The calmer mood saw the yen lose much of its safe-haven gains, with the dollar bouncing to 108.37 yen from a low of 107.75 hit on Monday.

The euro edged up to $1.1195 but faces stiff chart resistance around $1.1240, while sterling made gains to $1.3170 on better economic data at home.

Against a basket of currencies, the dollar had drifted off to 97.618 but stayed above the recent six-month trough of 96.355.