Sentiment was supported by weaker oil prices after Qatar said mediators were making progress in efforts to end the U.S.-Iran war, though details were lacking.
Brent LCOc1 crude rose over 50 cents, or 0.7%, to $79.95 a barrel, a long way from its July peak of $102, while U.S. crude CLc1 rose 14 cents to $75.90, after reports of attacks on a Saudi Arabian vessel in the Red Sea.
In the Strait of Hormuz, flows were proving more resilient than first thought, perhaps reaching 40% to 45% of pre-war levels last week, said John Oh, an energy economist at CBA, observing ship tracking numbers.
"We estimate that traffic flows only need to return to 50% to 60% of pre-war levels to assert oversupply conditions in global oil markets," he wrote in a note, adding it helped to explain why Brent oil futures had dipped into the $70s.
The pullback in oil provided some relief from inflation fears and boosted bonds globally, with 10-year Treasury yields US10YT=RR now at 4.606%, down from last week's high of 4.747%.
The next round of U.S. economic data, including Friday's jobs report and next week's inflation readings, will be closely watched by the Federal Reserve, said James Rossiter, head of global economics at TD Securities.
If the Fed shifted from holding rates steady to a tightening cycle, "markets would respond vigorously", Rossiter said.
Markets also lowered the probability of a September Fed rate hike to 57% from 67%.
Fed Bank of Kansas City President Jeff Schmid used a speech on Tuesday to call for tighter policy to help bring inflation back to the central bank's 2% target.
The euro was roughly flat at $1.1540 EUR=EBS, just below its recent six-week high of $1.1559. The dollar steadied at 157.75 yen JPY=EBS, with the threat of intervention still hanging over the market.
U.S. Treasury Secretary Scott Bessent said he was sure Bank of Japan Governor Kazuo Ueda would "do what is best" for Japan's economy, which markets took as encouragement to raise interest rates further.
Japan and the United States launched a rare joint yen-buying intervention last week and pledged further action if necessary to support the currency.
In commodity markets, the drop in yields helped non-interest-paying gold up 2.2% to $4,166 an ounce XAU=.
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