US Secretary of State John Kerry urged leaders of Iraq's autonomous Kurdish region on Tuesday to stand with Baghdad in the face of a Sunni insurgency, as security forces fought the rebels for control of the country's biggest oil refinery.
A senior US intelligence official said that the insurgents were "well positioned" to hold a broad swathe of territory captured in northern and western Iraq unless the Baghdad government can muster a counter-offensive.
Adding to upward pressure on oil prices was a Wall Street Journal report that US officials have allowed two companies to export a kind of ultra-light oil known as condensates, a first step that effectively loosens a 40-year ban on most US crude exports.
US crude for August delivery added about 0.7% to $106.76 a barrel.
"Oil prices have been unusually stable in recent years, but events in Iraq are causing a reassessment of medium-term oil market fundamentals that we expect to translate into a phase of higher long-term prices and more volatile trading conditions," strategists at Barclays said in a note to clients.
"Geopolitical risks have replaced China's growth and Fed policy as the main concerns for investors," they said.
Spot gold was treading water at $1,317.95 an ounce after spiking to a more than two-month high of $1,325.90 on Tuesday.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped about 0.1%, while Japan's Nikkei stock average skidded 0.4%.
In volatile US trading on Tuesday, the S&P 500 closed down more than half a% for its sharpest loss since June 12, after earlier setting a fourth record high in five sessions following upbeat US economic data.
Sales of new homes surged 18.6% to a seasonally adjusted annual rate of 504,000 units in May, the highest since May 2008 and the biggest increase since January 1992. Separate data from the Conference Board showed its index of consumer attitudes rose to 85.2 in June from a downwardly revised 82.2 in May.
But US Treasury prices shrugged off the brighter data and yields fell, with the benchmark 10-year rate dropping to 2.577% in Asia from its US close of 2.586%.
"While the improvement in consumer confidence and existing home sales are encouraging the decline in Treasury yields confirm what we have been saying all along which is that the data is just not good enough to push the Fed to tighten monetary policy early," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York.
A trio of Fed officials gave investors no reason to believe the central bank's stance had changed. William Dudley, president of the New York Fed, said the US central can wait to raise interest rates until mid-2015 without risking an undesirable rise in inflation.
San Francisco Fed President John Williams said on Tuesday that the US economy is about two years from being "normal," while Philadelphia Federal Reserve Bank President Charles Plosser said the economy continues to improve, making steady rather than exuberant progress.
The dollar edged down about 0.1% to buy 101.92 yen, while the euro also inched about 0.1% lower to 138.66 yen.
Japanese Prime Minister Shinzo Abe unveiled a package of measures on Tuesday aimed at boosting Japan's long-term economic growth, though market impact was muted.
The common currency was steady on the day at $1.3604.
The dollar index also consolidated at 80.318, solidly within the 80.000-81.000 range in which it has been stuck since May.