Oil prices tumbled and stock markets rallied Wednesday on reports that the United States had sent a peace plan to Iran.
After nearly four weeks of conflict, investors jumped on signs that hostilities could be winding down, with the safe-haven dollar losing support.
However, analysts pointed out that the arrival of more US troops in the Middle East and fresh missile strikes between Iran and Israel suggested chances of escalation remained.
"Oil prices have moved lower... offering some relief to equities that had been weighed down by worries over inflation," noted Matt Britzman, senior equity analyst at Hargreaves Lansdown.
"It's still a highly fluid situation. Trying to call how the rest of the week plays out would be unwise."
The economic impact of the crisis has begun to bite around the world, with governments trying to cut energy consumption.
Offering respite to some countries, Tehran announced it would let oil vessels from "non-hostile" nations through the crucial Strait of Hormuz.
Crude futures plunged more than six percent before barely creeping back -- with Brent back just below $100 -- after US President Donald Trump voiced optimism at ending the war and said officials were "in negotiations right now".
The head of the International Energy Agency, Fatih Birol, said he was "ready to move forward" with an additional release of oil reserves "if and when necessary".
Wall Street moved cautiously into the green in early trading with the Dow up 0.6 percent at 46,425.14 points.
The broader-based S&P 500 rose 0.4 percent while the tech-heavy Nasdaq had added just shy of one percent.
In Europe, London, Frankfurt and Paris were all up north of one percent some two hours from the close.
Asian markets closed with strong gains, led by Tokyo, which won nearly three percent.
- 'Buying on dip' -
"European markets are following the wider global theme of optimism as rumours swirl around the apparent negotiations that could lead us out of the conflict in Iran," said Joshua Mahony, chief market analyst at Scope Markets.
"Dip buyers have started to grab what they can, while oil prices shift lower as the perceived length of time associated with the disruption shortens."
European Central Bank chief Christine Lagarde said the ECB has several options for dealing with the energy shock, vowing policymakers would not be "paralysed by hesitation".
At its most recent meeting last week, the ECB kept interest rates on hold, while warning of higher inflation and lower growth in the eurozone owing to the war.
However, analysts have raised bets on the central bank hiking borrowing costs as soon as next month to try and keep the lid on an expected surge in consumer prices.
Hopes of an end to the Middle East conflict surfaced after the New York Times quoted unnamed officials saying that Washington had sent a 15-point peace proposal via Pakistan.
Israel's Channel 12 said that Trump was suggesting a one-month ceasefire during which they would discuss handing over Iran's enriched uranium and banning further enrichment.
The Israeli report added that Tehran would ensure safe passage through the Strait of Hormuz, while Iran would see an end to all sanctions and receive assistance in developing civil nuclear energy.
The strait, through which one fifth of global oil and gas normally flows, has largely been blockaded by Iran.
Away from the war and in a boost to the aviation sector hit by higher jet fuel costs, European planemaker Airbus has struck a $15.8-billion deal to provide China Eastern Airlines with 101 single-aisle passenger planes.
Airbus shares rose 2.1 percent in Paris mid-afternoon.
- Key figures at around 1415 GMT -
Brent North Sea Crude: DOWN 4.4 percent at $99.87 a barrel
West Texas Intermediate: DOWN 4.3 percent at $88.36 a barrel
New York - Dow: UP 0.6 percent at 46,425.14 points
New York - S&P 500: UP 0.4 percent at 6,596.65
New York - Nasdaq Composite: UP 0.9 percent at 21,967.48
London - FTSE 100: UP 1.2 percent at 10,079.79 points
Paris - CAC 40: UP 1.2 percent at 7,834.65
Frankfurt - DAX: UP 1.5 percent at 22,966.03
Tokyo - Nikkei 225: UP 2.9 percent at 53,749.62 (close)
Hong Kong - Hang Seng Index: UP 1.1 percent at 25,335.95 (close)
Shanghai - Composite: UP 1.3 percent at 3,931.84 (close)
Euro/dollar: DOWN at $1.1574 from $1.1583 on Tuesday
Pound/dollar: DOWN at $1.3369 from $1.3381
Dollar/yen: UP at 159.13 yen from 159.03 yen
Euro/pound: UP at 86.58 pence from 86.57 pence
burs-bcp/ajb/cw/jj
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