US oil prices stayed within a whisker of $45 a barrel yesterday, but European stocks still made hesitant gains as the market awaited an expected interest rate hike from the Federal Reserve.
Bond yields also rose and the dollar was steady as traders anticipated a quarter point US interest rate rise and prepared to analyse the accompanying Fed statement for indications about how tight its monetary policy might become.
US oil prices jumped to $44.99, the highest since futures were launched on the New York Mercantile Exchange in 1983 as violence in Iraq disrupted output and exports from the country, adding to fears about supply.
London Brent crude was last trading down 16 cents at $41.40 per barrel and US light crude had given up nine cents at $44.75 a barrel.
But markets fretting about the damage to economic growth from record high oil prices and last week's disappointing jobs data, both of which have raised questions about the strength of the US recovery, also want to know about future moves.
"Equity markets in particular have felt the pain as higher oil prices mean higher costs and lower revenues and therefore slower profit growth," said Bernard Walschots, strategist at Rabobank.
Economists say the Fed could signal a pause in the tightening cycle and that could comfort equity markets.
But they think that would only happen if the Fed has suddenly become concerned about the health of the economy, which would probably be even scarier for stock investors.
"It seems like the stock market is in a Catch-22 situation," said Mr Walschots.
The pan-European blue-chip FTSE Eurotop 300 index was up 0.1 per cent at 949 points and the narrower DJ Euro Stoxx 50 index had gained 0.2 per cent to 2,601.9 points.
Overnight in New York, US stocks ended little changed as investors worried about US economic and earnings growth.
Japan's Nikkei Average closed up 0.4 per cent at 10,953.5 points, but gains were limited by caution ahead of the Fed's interest rate decision.
The broader TOPIX index picked up 0.3 per cent to end the day at 1,105.0 points.
"Whatever the Fed's rate decision is, market participants are now focused on a slowdown in the US economy," said Joji Maki, senior director at Baring Asset Management.
"As a consequence (of any slowdown), US bond yields will fall and the dollar will weaken against the yen, and that's no good for the Japanese economy."
The benchmark 10-year US Treasury bond yield was steady around 4.258 per cent and the 10-year German Bund yield was up 0.5 basis points at 4.077 per cent.
The interest rate-sensitive two-year Schatz yield rose 1.6 basis points to 2.47 per cent.
On currency markets the dollar was up 0.1 per cent against the yen at 110.8 and the euro was steady around $1.2270, near recent two-week highs.