Positive market momentum from last week's upbeat U.S. jobs data was stifled Monday as oil prices struck fresh 30-month highs amid signs the conflict in Libya will not end anytime soon.
Though Friday's news that the U.S. economy generated a greater than anticipated 216,000 jobs in March helped Asian stocks post broad-based gains earlier, the buying has since dried up as traders assess the impact of sky-high oil prices on the global recovery.
The apparent stalemate in Libya, which accounts for a little under 2 percent of daily oil production, is keeping crude prices elevated. By late morning London, a barrel of oil traded on the New York Mercantile Exchange was up 62 cents at $108.56 a barrel, its highest level since September 2008.
That's bad for economic growth prospects all around the world and helps explain the lackluster trading in European markets.
"Friday's solid payroll reading from the U.S. is certainly helping buoy sentiment in general although with oil prices spiraling and gold ticking higher too, there's definitely some suggestion of risk aversion being in play," said Yusuf Heusen, senior sales trader at IG Index.
In Europe, the FTSE 100 index of leading British shares was up 0.1 percent at 6,018 while Germany's DAX was more or less flat at 7,181. The CAC-40 in France was 0.2 percent lower at 4,048.
Things aren't expected to get much better when Wall Street opens for business later _ Dow futures were up 7 points at 12,325 while the broader Standard & Poor's 500 futures rose a little over a point to 1,329.
As well as keeping a close watch on developments in Libya, investors will continue to monitor what's going on in Japan after last month's devastating earthquake and tsunami, which has hurt economic confidence in the country.
Earlier, the Bank of Japan's closely watched tankan survey indicated that the impact on expectations has been profound, especially as the authorities continue to try to bring the damaged Fukushima Dai-ichi nuclear complex under control.
The damage forced the plant to cut its daily power supply in Tokyo and surrounding areas, causing many factories to suspend or limit operations. Still other companies have limited or stopped production because of disruptions in supply chains.
Later in the week, central banks will take center stage. While the European Central Bank is widely expected to raise its benchmark interest rate from the current record low of 1 percent, there's more uncertainty about what the Reserve Bank of Australia and the Bank of England will do, with most economists predicting that they will end up leaving borrowing costs unchanged.
The Bank of Japan also meets this week and investors will be looking to see if it enacts any further policy measures. The central bank has pumped billions of yen into the economy as it tries to keep liquidity flowing through the system. It has also received international support to stem the export-sapping appreciation of the yen following last month's disaster.
The intervention has clearly helped. By late morning London time, the dollar was down 0.2 percent on the day at 84.03 yen _ despite the modest fall Monday, the dollar is trading around 8 yen higher than the record low of 76.53 yen.
Meanwhile, the euro remained elevated despite trading 0.2 percent lower on the day at $1.4211.
The euro has gained a lot of ground over the past few weeks as traders priced in the growing likelihood that the European Central Bank will raise its main rate a quarter of a percentage point to 1.25 percent on Thursday.
However, some analysts think that the currency may be vulnerable given the scale of tightening priced in the markets as well as ongoing concerns over the financial fate of Portugal, whose borrowing costs seem to be staking out record highs on a daily basis.
In addition, Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ, said there's scope for the dollar to reclaim some lost ground if investors start thinking the Fed will start raising its borrowing costs sooner than currently predicted. Some officials at the Federal Reserve are clearly inclined to do so if recent comments are any guide.
"A very high hurdle has been set for the euro to gain fresh upside momentum on the back of ECB tightening expectations ahead," said Hardman. "There is more scope for building Fed tightening expectations to provide support for the dollar."
Earlier, Asian shares ended the day mostly higher, with traders looking past a host of crises, including Japan's leaking nuclear power plant and a violent rebellion in Libya.
The benchmark Nikkei 225 index eked out a gain of 0.1 percent to close at 9,718.89, shrugging off the Bank of Japan report that business confidence among major manufacturers had fallen.
Hong Kong's Hang Seng index gained 1.5 percent to 24,150.58, while Australia's S&P/ASX 200 rose 0.5 percent to 4,886.80.
Markets in mainland China and Taiwan were closed for a holiday.
Pamela Sampson in Bangkok contributed to this report.