Europe's stock markets mostly retreated Tuesday on worries over simmering Middle East tensions, which are centered on Saudi Arabia and have catapulted oil prices to two-year peaks.

Crude jumped higher this week on Saudi Arabia's sweeping crackdown on princes and ministers, with billionaire tycoon Al-Waleed bin Talal arrested on corruption allegations.

Oil was boosted further as geopolitical tensions surged between Riyadh and Tehran, sparking fears of a conflict that could disrupt supplies from two major producers.

Brent oil struck $64.65 per barrel - the highest since June 2015. New York crude hit $57.69, last seen in July of the same year.

Rising oil prices tend to boost the energy sector and in turn boost world stock markets. However, the lingering geopolitical uncertainty has cast a pall over Europe's equity markets, dealers said.

"Strong gains in the pre-market for European and U.K. [stocks] indices have unwound ... as the prospect of further tensions in Saudi Arabia unnerves investors," said IG analyst Chris Beauchamp.

"Initial glee at the steady rise in oil prices has given way to unease about what might be next in this volatile region.

"A showdown with Iran looks likely, with significant ramifications, and not just for the Middle East."

On the upside, Asian markets rose on Tuesday, with Tokyo and Sydney breaking through historic ceilings thanks to strong corporate earnings and a positive global growth outlook.

Japan's Nikkei closed at its highest level since January 1992, and Sydney's S&P/ASX 200 broke above the psychologically important 6,000 points barrier for the first time since the global financial crisis.

The upward trend tracked overnight records on Wall Street, where US stocks hit fresh highs for the second straight day amid a tech-sector mega-merger, buoyant oil prices, solid economic data and a series of strong earnings reports.

Asia investors appear to have shrugged off nervousness over tensions on the Korean peninsula, with U.S. President Donald Trump visiting Seoul.

Trump arrived Tuesday for a two-day visit to South Korea, which he had previously accused of appeasing the North.

There had been fears that Trump's rhetoric or mere presence close to North Korea would raise tensions with Pyongyang or trigger further weapons tests by the nuclear-armed regime.

But so far there have been no significant developments to upset the markets.

A more alarming development for traders in Seoul - where shares slipped 0.2 percent - was the possible renegotiation of the U.S.-Korea Free Trade Agreement.

Japan's rally has been aided by a strong earnings season, with Toyota on Tuesday the latest major corporate to raise its profit forecast for the year.

Japan's number-one carmaker said its net profit rose 13.2 percent to 1.07 trillion yen ($9.4 billion) for the six months to September, citing a cheaper yen and cost-cutting efforts.

In recent months, crude oil has been on an upward trajectory due to growing global demand as OPEC leads efforts to limit supply.

Source: AFP