Global financial markets regained composure after Iran announced it was halting offensive military operations against Israel, easing fears of a wider conflict in the Middle East and triggering a pullback in oil prices.
Brent crude, which had surged close to $98 a barrel earlier in the day on concerns over potential supply disruptions, retreated to around $94.58 a barrel, up 1.75 percent. European equities also recovered, with the pan-European Stoxx 600 index moving into positive territory after opening lower.
Government bond markets rebounded as demand for safe-haven assets eased, pushing down yields on US, UK and eurozone sovereign debt.
The improvement in market sentiment came after US President Donald Trump urged both Iran and Israel to stop "shooting" and said the two sides appeared ready for an immediate ceasefire.
Shortly afterwards, Iran's military joint command announced it was suspending offensive operations against Israel. However, Tehran warned that it would respond with far greater force if attacks continued, including those involving southern Lebanon.
The latest de-escalation followed a day of intense military exchanges. Iran launched multiple attacks on Israel on Monday, while Israel carried out strikes in central and western Iran. Explosions were reported in Tehran, although there were no immediate reports of casualties.
Iran's Islamic Revolutionary Guards Corps (IRGC) said it had targeted a petrochemical facility in the Israeli city of Haifa in retaliation for Israeli strikes on the Karun petrochemical complex in Iran's Khuzestan province.
Adding to regional tensions, Yemen's Iran-aligned Houthi rebels launched attacks towards Israel and threatened Israeli-linked shipping in the Red Sea.
The confrontation intensified after Israel struck the southern suburbs of Beirut on Sunday, an action Tehran viewed as a breach of the US-Iran ceasefire reached earlier this year.
Despite the fragile nature of the situation, investors welcomed signs that both sides may be seeking to avoid a broader regional war. The easing of geopolitical tensions helped reverse earlier risk-off trades across commodities, equities and bond markets.