Oil eases a touch; euro runs out of steam

US oil futures eased from a two-and-a-half year high and the euro stalled on Tuesday, while Asian stocks remained under pressure as investors fretted that higher energy prices would stunt the global economic recovery.

US crude eased almost 50 cents, or 0.5%, to just under USD 105 a barrel, as traders assessed efforts to stem fighting in Libya that threatens to spiral into civil war.

A rally in the euro ran out of steam as investors who had been betting against the dollar took profits.

Market players have been focused on the prospect of a European Central Bank interest rate rise as early as next month, but the euro zone debt crisis returned to the fore on Monday, when Moody's slashed Greece's sovereign rating by three notches.

The euro struggled to make much headway in Asia after its rally stalled just above USD 1.40 overnight, helping an oversold dollar edge off four-month lows against a basket of major currencies.

The euro traded around USD 1.3965, down from a high of around USD 1.4036 on Monday, while the dollar index was steady around 76.517.

"We are still USD bears, but the scale of speculative market net shorts in the USD is significant," said Peter Frank, strategist at Societe Generale.

"With the aggregate net short at USD 39.5 billion, surpassing even the pre-Lehman 2007 peak, the USD could benefit from profit-taking in the near-term."

Japan's Nikkei benchmark edged higher as investors covered short positions after selling heavily on Monday, but analysts said gains may be limited as concerns about turmoil in the Middle East and oil prices persist.

"The market's fundamentals are recovering on corporate earnings so sentiment for the longer term is good. But for the short-term, the market may see some correction due to continuing worries about develoments in the Middle East," said Hajime Nakajima, deputy general manager at Cosmo Securities.

Japan's Nikkei rose 0.38% and Hong Kong's Hang Seng Index was up 0.24% helped by a broadly stronger energy sector and gains in Chinese large caps.

Seoul shares were up 0.96% after sharp falls in the previous session, lifted by shipbuilders and technology plays.

After an early fall, MSCI's index of Asia Pacific shares outside Japan was up 0.28% helped by gains in energy and industrials.

"It will be difficult for risk markets such as equities and industrial commodities to push into higher ranges whilst the threat to oil supplies remains elevated," said Ric Spooner, chief market analyst at CMC Markets in Australia.

US stocks fell on Monday, with the S&P 500 down 0.8% and the Nasdaq off 1.4%.

The prospects of further unrest in oil-rich Middle Eastern countries has driven investors to seek safe-haven assets. Spot gold traded around USD 1,432.30 an ounce, down a little from a record USD 1,444.40 scaled on Monday.