Asian equities caught up with the strong gains Tuesday but the rally fizzled in the European and US sessions.
Oil prices, which had tumbled on Monday, rebounded strongly with Brent popping back above $100 a barrel.
"The Iran war is not over, and the Strait of Hormuz remains closed," said Kathleen Brooks, research director at XTB.
"It will take more conciliatory remarks from Donald Trump to extend Monday’s recovery rally and give hope that the war is close to wrapping up."
Axel Rudolph at trading platform IG said European "markets began the day on a negative footing but ended it in the green, torn between fears that the conflict in the Middle East may not wind down anytime soon and the hope that it may."
Trump on Monday stepped back from his threat to attack energy sites, citing "very good" talks to end the war.
But, Tehran's parliamentary speaker said "no negotiations" were underway, insisting Trump was seeking "to manipulate the financial and oil markets".
And hours after Trump's apparent U-turn, Iranian media reported that Israeli-US strikes targeted two gas facilities and a pipeline.
"Markets (are) increasingly questioning the validity of Trump's claim of positive negotiations with Iran," noted Joshua Mahony, chief market analyst at Scope Markets.
The economic impact of the war is also becoming clearer.
Business activity in the eurozone slowed significantly in March according to a closely watched survey published Tuesday, as the war sent energy prices surging and disrupted global supply chains.
The HCOB Flash Eurozone purchasing managers' index registered a significantly lower figure of 50.5 for March, down from 51.9 in February. A reading above 50 indicates growth.
"The flash Eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth," said Chris Williamson, chief business economist at S&P Global Market Intelligence, which published the findings.
The initial reading for the composite US PMI dipped to an 11-month low of 51.4 points in March from 51.9 points in February.
"The risk is that the PMI data, which is a lead indicator, is the start of a wave of weaker economic data to come down the line," said XTB's Brooks.
Iran's choking of the Strait is also impacting airlines, with Lufthansa, Cathay Pacific, and Air France extending flight suspensions to destinations across the Middle East.
Lufthansa shares fell nearly two percent and Air France-KLM shares ended the day down three percent.
