* Trump tells aides he is willing to end Iran war without

reopening Hormuz - WSJ

* U.S., European futures turn higher; Asia shares

struggle

* Oil prices retreat but still set for strong monthly

gains

(Updates to Asia afternoon)

By Rae Wee

SINGAPORE, March 31 (Reuters) - Oil prices were set for

a record monthly rise on Tuesday while Asian shares were headed

for their steepest fall in six years, capping a tumultuous month

as the war in the Middle East stoked fears of higher inflation

and slower growth.

Bonds were headed for their largest decline in months, owing

to the hawkish sea change in the global outlook for interest

rates, while the dollar was on the cusp of its strongest gain in

eight months.

A month into the war, investors continue to be whipsawed by

a barrage of headlines as tensions and attacks between the U.S.,

Israel and Iran escalate.

"It appears markets have gone from just mechanically trading

headlines ... into a little bit more of a fear mode, taking risk

off the table," said Vishnu Varathan, Mizuho's head of macro

research for Asia ex-Japan.

"That partly might have to do with the transition from

earlier thinking that there's a good chance of Trump being able

to control the timeline and/or your TACO trade, to now beginning

to be concerned or fearing a more prolonged conflict."

Markets turned a little more upbeat after The Wall Street

Journal reported that U.S. President Donald Trump told aides he

is willing to end the military campaign against Iran even if the

Strait of Hormuz remains largely closed.

Nasdaq futures were up 0.73% and S&P 500 futures

rose 0.84%. EUROSTOXX 50 futures advanced 0.35%,

while DAX futures gained 0.48%.

Brent crude futures pared gains and were last up

0.24% at $113.05 a barrel, on track for a 56% rise this month,

the largest on record.

U.S. crude was little changed at $102.98 a barrel,

though it was still headed for a monthly rise of roughly 54%,

the most in nearly six years.

"I think inflation will be the bigger near-term concern for

global markets," said Thomas Mathews, head of markets for

Asia-Pacific at Capital Economics.

"But if oil prices don't fall back over the next few months,

we will probably have to start thinking about growth too."

The higher-for-longer energy prices have meant more pain for

Asia, which is highly reliant on energy from the Middle East.

MSCI's broadest index of Asia-Pacific shares outside Japan

was down 1.43%, on track for a monthly fall of

more than 13%, the most substantial decline since March 2020.

Japan's Nikkei was down 1.27% and set to lose nearly

13% this month, while South Korea's Kospi was headed for

a monthly decline of more than 18%, the most since 2008.

BONDS UNDER WATER, DOLLAR IS KING

The threat of inflation has led investors to ramp up

expectations for rate hikes across major central banks this

year, which in turn hammered bonds.

The Federal Reserve is now expected to keep rates on hold

this year, compared with more than 50 basis points

worth of easing priced in prior to the start of the war.

Fed Chair Jerome Powell on Monday said the U.S. central bank

can wait to see how the Iran war affects the economy and

inflation, noting that policymakers typically look through

shocks such as those from higher oil prices.

U.S. Treasury yields steadied on Tuesday, though the

two-year yield was set to rise more than 40 bps for

the month, its largest increase since October 2024.

The benchmark 10-year yield has similarly

advanced about 36 bps in March, its largest monthly rise since

December 2024.

In currencies, the dollar was headed for its biggest monthly

gain since July, having emerged as one of the few safe-haven

assets amid the war.

Against a basket of currencies, the greenback was set

to rise roughly 2.9% this month. The euro, which last

bought $1.1469, was headed for a nearly 3% monthly loss while

sterling was down more than 2% in March.

The yen remained a whisker away from the 160 per

dollar level and last stood at 159.63.

Asian currencies have come under heavy selling amid the war,

putting them among ​the largest losers globally. India's rupee,

Indonesia's rupiah and the Philippine peso have been pulled to

record lows against the dollar this month.

"For the long Asian currencies positions, we have closed

them out," said Ang Ze Yi, an Asian fixed income senior

portfolio manager at AllianzGI. "We still like them on a

structural basis, but for now, we have neutralised and we just

want to let the volatility and uncertainty die down first,

before we put those positions back on."

In precious metals, spot gold was up 1.2% at

$4,564.73 an ounce.