Equity markets in New York jumped and crude plunged Monday after the US president made the surprise announcement that he would hold off fresh attacks on energy infrastructure for five days following negotiations with an unidentified "top person".

The news ramped up hopes for an end to the conflict and the reopening of the Strait of Hormuz, through which a fifth of global oil and gas normally flows.

Brent slumped as much as 14 percent at one point to $96, while all three main indexes on Wall Street climbed more than one percent, with commentators suggesting prices could drop to as low as $90.

However, the mood was deflated somewhat after Iranian media said there had been no talks between Tehran and Washington.

And the Fars news agency reported that Deputy Speaker of Parliament Ali Nikzad said there would be no talks, while the Strait of Hormuz would remain effectively closed.

"The signal here is clear," said Pepperstone's Michael Brown. "Trump has pulled back on the ultimatum issued over the weekend, is seemingly seeking de-escalation for the first time since conflict begun, and looks to be trying to find an off-ramp to allow that to happen.

"To me, this is by far the most important part of all this."

Asian markets enjoyed a positive day, with Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Singapore, Bangkok, Mumbai and Manila all up. Taipei and Wellington both fell.

Crude bounced, with Brent rising nearly three percent and above $102, while WTI climbed more than three percent to more than $91, with investors still sceptical about the chances of a breakthrough in talks.

There was little reaction to Japanese Prime Minister Sanae Takaichi saying the country would release another part of its strategic oil reserves from Thursday.

- Dollar rebounds -

On currency markets the dollar climbed against the euro, pound and yen after sinking on Monday.

Markets had started the week deep in the red after Trump warned Saturday that Iran had 48 hours to allow traffic through Hormuz or he would strike the country's energy infrastructure. Tehran replied by saying the waterway "will be completely closed" should he act on his threat.

His decision to U-turn hours before the deadline came up was pounced on by observers as another example of a TACO moment -- an acronym of "Trump Always Chickens Out" -- in which he escalates before pulling back from the brink.

But Stephen Innes at SPI Asset Management warned the president may have overplayed his hand.

"You can talk down a market. You can jawbone crude lower. You can release emergency reserves and tweak sanctions to flood the tape with supply optics," he wrote.

"But you cannot instantly repair disrupted shipping lanes, fractured refining capacity, or the insurance black hole forming around tanker traffic. The market may trade the headline in the short term, but it settles on the barrel in the medium term. And right now the barrel is still constrained."

Meanwhile, the Wall Street Journal reported that Saudi Arabia and the United Arab Emirates were considering joining the fight following persistent and damaging attacks from Iran since the US-Israel strikes began on February 28.

The article said they were not deploying troops but pressure was building on them to do so as Tehran looks to exert greater sway over the region.

Elsewhere, the European Union and Australia struck a long-awaited free trade deal on Tuesday as they completed years of negotiations to boost exports in the face of global uncertainty over trade.

They also signed an agreement to step up defence cooperation as well as critical raw materials.

- Key figures at around 0700 GMT -

Brent North Sea Crude: UP 2.8 percent at $102.73 per barrel

West Texas Intermediate: UP 3.7 percent at $91.36 per barrel

Tokyo - Nikkei 225: UP 1.4 percent at 52,252.28 (close)

Hong Kong - Hang Seng Index: UP 2.4 percent at 24,959.34

Shanghai - Composite: UP 1.8 percent at 3,881.28 (close)

Euro/dollar: DOWN at $1.1584 from $1.1616 on Monday

Pound/dollar: DOWN at $1.3399 from $1.3437

Dollar/yen: UP at 158.68 yen from 158.34 yen

Euro/pound: DOWN at 86.41 pence from 86.45 pence

New York - Dow: UP 1.4 percent at 46,208.47 points (close)

London - FTSE 100: DOWN 0.2 percent at 9,894.15 (close)

dan/mjw

INDEX CORP.

Dow