Wall Street stocks rebounded and oil prices pulled back sharply on Tuesday after U.S. President Donald Trump declared the Middle East war could be "over soon," even as the U.S. and Israel pounded Iran with what the Pentagon and Iranians on the ground said were the most intense airstrikes yet.

U.S. stocks advanced, with the Dow Jones Industrial Average .DJI up 0.2%, the S&P 500 .SPX 0.1% higher, and the Nasdaq Composite .IXICahead 0.25%.

Europe's STOXX 600 index .STOXX pared some earlier gains but finished up 1.65% on Tuesday after declining for three consecutive trading days. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose around 3.4%.

Oil prices droppedaround 10% on Tuesday after soaring to a more than three-year high in the previous session. Brent futures LCOc1 were last trading around $90 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 fell to $85 a barrel.

Trump's remarks on Monday injected optimism into the markets that contrasted with events in Iran, where hardliners rallied behind new Supreme Leader Mojtaba Khamenei and the Revolutionary Guards said a blockade of oil exports would continue until U.S. and Israeli attacks end.

Trump said the U.S. would hit Iran much harder if it blocked exports. On Tuesday, Trump told Fox News it was possible he would talk with Iran, while U.S. Defense Secretary Pete Hegseth said Tuesday would be the most intense day of strikes against Iran in the campaign so far.

Sameer Samana, head of Global Equities and Real Assets at the Wells Fargo Investment Institute, wrote in an email that WTI crude prices would eventually revert to between $65 and $75 a barrel, revealing a solid economic and corporate-earnings backdrop.

"We would continue to try and look through those near-term headlines, as we see the conflict as lasting weeks/months and not changing the forward outlook meaningfully," Samana said.

A GLOBAL REBOUND?

Steadier investor sentiment triggered a share rebound in Europe and Asia on Tuesday, while government bond yields dipped and interest rate expectations shifted again.

European indexes followed Asia higher to start the day before retracing some gains as the day progressed, with Germany's DAX .GDAXI last up 2.4% and France's CAC 40 .FCHI adding around 1.8%.

Money markets cut the chances of a European Central Bank rate hike this year, after this was more than fully priced in late on Monday, while the benchmark German 10-year bond DE10YT=RR was little changed at 2.86%.

"Market pricing suggests weeks of disruptions, not days or months," analysts at BlackRock Investment Institute wrote. "There’s a risk of a stagflationary shock but it’s not a given, as market pricing indicates."

The yield on the U.S. 10-year Treasury note US10YT=RR was last down 0.2 basis points at 4.132%, having eased more sharply earlier in the day. Traders pushed out bets on the timing of the Federal Reserve's next rate cut, with the first reduction now not seen until July, according to the CME Group's FedWatch tool.

"We are still at troubling levels," ING analysts said, referring to bond yields. "Expect nominal yields to fall for a bit on a reversal trade. But don't expect a dramatic structural rally in bonds," they wrote in a client note.

The U.S. dollar index =USD, which measures its performance against a basket of six major currencies, was slightly lower, extending Monday's sharp fall.

Gold XAU= was up around 1.66% at $5,221 an ounce, while bitcoin BTC= added 2.6% to $70,793.

-Lawrence Delevingne and Sophie Kiderlin/Reuters