London (AFP) - Oil prices fell back in choppy trading and stock markets were marginally higher Tuesday as investors weighed fading expectations of higher interest rates against concern over oil flows from the Middle East.

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 of Hormuz.

Oil contracts later gave up those gains, but are still 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 New York, the Dow and the wider S&P edged higher while the tech-heavy Nasdaq opened lower. In mid-afternoon European trading Frankfurt, London and Paris were all up slightly.

“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.”

Asian equities ended mixed, with Tokyo closed for a holiday.

In their latest exchanges, Donald Trump and Iranian leaders each insisted Monday that they were owed reparation payments by the other.

The prospect of oil prices remaining elevated for the time being has revived concerns over inflation and boosted the chances of higher interest rates.

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.

Attention now turns to the release of US consumer price data on Wednesday, which could play a key role in guiding the Fed on its next move.

“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.

- Key figures around 1340 GMT -

Brent North Sea Crude: DOWN 0.7 percent at $87.12 per barrel

West Texas Intermediate: DOWN 0.6 percent at $8.64 per barrel

New York - DOW: UP 0.3 percent at 54,143.03 points

New York - S&P 500: UP 0.1 percent at 7,758.40

New York - Nasdaq Composite: DOWN 0.2 percent at 26,540.53

London - FTSE 100: UP 0.1 percent at 10,870.78 points

Paris - CAC 40: UP 0.1 percent at 8,733.60

Frankfurt - DAX: UP 0.4 percent at 26,415.45

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