Volkswacht Bodensee - Oil prices higher, stocks flat ahead of inflation report

Oil prices initially rose more than two percent with the United States and Iran appearing to not make much progress towards a deal to reopen the strait, which is vital to the world's flow of crude shipments.

Oil contracts later gave up those gains, before resuming their climb, as investors' expectations of an agreement between the United States and Iran ebbed and flowed.

The Wall Street Journal also reported that the US military fired on a Panama-flagged ship, to stop it as it tried to get past the US blockade of Iranian ports.

Oil prices are up around 10 percent in the past five days and are trading near their highest levels since early June.

"Crude oil has surged over the past few days as hopes of a US-Iran agreement that would fully reopen the Strait of Hormuz have faded," said Fawad Razaqzada, market analyst at FOREX.com.

But "we have also heard contradictory messages from Washington and Tehran", he said.

In European stock trading, Paris and London closed marginally lower while Frankfurt was higher.

In New York late morning, the Dow and the wider S&P were basically flat near record highs, while the tech-heavy Nasdaq was slightly lower.

Investors avoided taking bets ahead of Wednesday's release of US consumer price data, which could play a key role in guiding the Fed on its next move with the US jobs market showing signs of weakening but higher oil prices potentially pushing up inflation.

"The slight drop in expectations for Federal Reserve rate hikes following the weak US payroll report have supported equities," said David Morrison, senior market analyst at Trade Nation.

"But rising crude oil prices... and further delays in reopening the Strait of Hormuz, have introduced fresh inflation risks."

Last week's report of a surprise loss of over 20,000 jobs in the US economy last month had eased fears of a Federal Reserve rate hike.

But the prospect of Hormuz staying shut and oil prices remaining elevated has revived concerns over inflation and boosted the chances of higher interest rates.

"The Fed problem is becoming more awkward," said Patrick Munnelly at the Tickmill Group.

"Labour-market cooling can justify patience, but energy-driven inflation can undermine that patience if it lifts headline CPI, gasoline prices and household inflation expectations," he said.

In their latest exchanges, US President Donald Trump and Iranian leaders each insisted Monday that they were owed reparation payments by the other, throwing a wrench in efforts to get oil flowing again out of the Gulf.

But investors have become used to both sides backing off after trading harsh rhetoric.

- Key figures around 1540 GMT -

Brent North Sea Crude: UP 0.5 percent at $88.28 per barrel

West Texas Intermediate: UP 0.6 percent at $82.54 per barrel

New York - DOW: DOWN 0.1 percent at 53,920.40 points

New York - S&P 500: DOWN 0.1 percent at 7,743.00

New York - Nasdaq Composite: DOWN 0.3 percent at 26,526.03

London - FTSE 100: DOWN 0.2 percent at 10,844.19 points (close)

Paris - CAC 40: DOWN 0.1 percent at 8,714.94 (close)

Frankfurt - DAX: UP 0.4 percent at 26,391.42 (close)

Hong Kong - Hang Seng Index: DOWN 1.1 percent at 25,652.82 (close)

Shanghai - Composite: DOWN 0.8 percent at 3,934.09 (close)

Tokyo - Nikkei 225: Closed for holiday

Euro/dollar: DOWN at $1.1541 from $1.1543 on Monday

Pound/dollar: DOWN at $1.3499 from $1.3508

Dollar/yen: DOWN at 159.24 yen from 159.31 yen

Euro/pound: UP at 85.52 pence from 85.45 pence

G.Haefliger--VB