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Singapore - Oil prices fell more than $1 a barrel on Tuesday, pulling away from two-and-a-half year highs, but Asian stocks remained under pressure as investors worried higher energy prices could stunt the global economic recovery.
US crude oil futures fell $1.30 to $104.14 and Brent crude dropped to $113.60 after reports that Libyan leader Muammar Gaddafi was looking for a way to step down and as Kuwait's oil minister said Opec was in talks to increase production to ease worries about Middle East supply disruptions.
European shares were expected to edge up, rebounding from losses the previous day, as crude prices retreated. US stock index futures rose 0.6%, pointing to a firmer opening on Wall Street. .
"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 developments in the Middle East," said Hajime Nakajima, deputy general manager at Cosmo Securities.
Market players have been focused on the prospect of a European Central Bank interest rate rise as early as next month, but the eurozone debt crisis returned to the fore on Monday, when Moody's slashed Greece's sovereign rating by three notches.
The euro edged higher on Tuesday but crowded bets on the currency could cause a near-term decline before it is able to take another shot at its November peak just above $1.4280.
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 high oil prices persist.
Japan's Nikkei closed up 0.19% while the broader Topix shed 0.26%.
After an early fall, MSCI's index of Asia Pacific shares outside Japan was up 0.5% helped by gains in energy and industrial stocks.
Hong Kong's Hang Seng Index rose 1.3%, helped by a broadly stronger energy sector and gains in Chinese large caps.
Seoul shares were up 0.8% after sharp falls in the previous session, lifted by shipbuilders and financials but falls in technology plays dented upside momentum.
"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 was little changed at $1 430.55 an ounce by 05:04 GMT, having rallied as high as $1 444.40 an ounce on Monday, a record high, as violence flared in Libya and after the downgrade of Greece's credit rating reignited worries about eurozone sovereign debt.
