Asian stocks advanced while oil prices and the safe-haven dollar fell on Tuesday as the U.S. said it continued to engage with Tehran to make a deal even as it blocked Iran's ports after the collapse of peace talks over the weekend.

Sources told Reuters that both sides have left the door open to dialogue and a U.S. official said there was forward motion on trying to get to an agreement.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1% in early Asia trade, while Japan's Nikkei .N225 and South Korea's KOSPI .KS11 rose more than 2% each.

Nasdaq futures NQc1 advanced 0.13% while S&P 500 futures held steady, following an overnight rally on Wall Street, while EUROSTOXX 50 futures STXEc1 gained 0.63% and DAX futures FDXc1 added 0.77%.

"Markets are trading hope, not resolution," said Charu Chanana, Saxo's chief investment strategist.

"The failed weekend talks did not produce a deal, but they also did not close the door on diplomacy, and that is enough for equities to keep pushing higher for now."

U.S. President Donald Trump said on Monday that Iran had "called this morning" and "they'd like to work a deal". Reuters could not immediately verify the assertion.

The U.S. military meanwhile began a blockade of Iran's ports in a move aimed at putting pressure on Tehran.

Trump has said Washington would block Iranian vessels and any ships that paid such tolls and that any Iranian "fast-attack" ships that went near the blockade would be eliminated.

"The U.S. has actually played that trump card. To me it's important because they forced the onus back on Iran to open the Strait without the need to put those boots on the ground," said Tony Sycamore, a market analyst at IG.

"It's now forced the Iranians back to the drawing board."

Oil prices slid as expectations for a resolution outweighed concerns over supply disruptions, leaving Brent crude futures LCOc1 down 2.7% at $96.66 a barrel. U.S. crude futures CLc1 fell 3% to $96.13 per barrel.

DOLLAR ON THE BACK FOOT

The dollar fell to a 1-1/2-month low of 98.328 against a basket of currencies =USD on Tuesday, as buoyant risk sentiment dampened demand for the world's reserve currency.

That left the euro EUR= trading 0.05% higher at $1.1764 while sterling GBP= rose to a more than six-week peak of $1.3514.

"The U.S. and Iran have started to walk down the path of coming up to an agreement," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

However, "the markets are still facing a global economic outlook that is deteriorating, and I think the risks are high that you get equity markets and credit markets and the like fall again, and that would push up the U.S. dollar against probably all currencies."

U.S. Treasury yields were little changed, with the two-year yield US2YT=RR last at 3.7722% while the benchmark 10-year yield US10YT=RR stood at 4.2854%. US/

The inflationary pulse from the steep rise in energy prices has prompted investors to prepare for the possibility that a number of major central banks will lean towards raising rates, marking a sharp reversal from expectations prior to the war for rate cuts or a prolonged pause.

Elsewhere, spot gold XAU= was up 0.7% at $4,771.81 an ounce. GOL/

Cryptocurrency bitcoin BTC= added 1.5% to around $74,312.

-Rae Wee/Reuters