* European stocks up in early trading after Asia falls

* Brent crude up 60% in March, biggest monthly rise ever

* Gulf peace talks uncertain as US builds up troops

(Updates after European markets open)

By Iain Withers and Wayne Cole

LONDON/SYDNEY, March 30 (Reuters) - Brent crude oil rose

3% on Monday and was on track for a record monthly rise while

global stocks were in limbo as investors dug in for a Gulf

conflict they fear will bring a spike in inflation and the risk

of recession to much of the globe.

Shares across Asia fell, with Japan's Nikkei index closing

down 2.8%, in a region more reliant on Gulf oil exports.

European stock markets were firmer in early trading and Wall

Street futures pointed to gains, although they were slim given a

recent sell-off.

Investors were assessing conflicting developments. The

Financial Times late on Sunday quoted President Donald Trump

saying the U.S. could seize Kharg Island in the Persian Gulf,

from where Iran exports much of its oil, but also that a

ceasefire could come quickly.

Pakistan said it was preparing to host "meaningful talks" to

end the conflict over Iran in coming days, even though Tehran

accused Washington of preparing a land assault as the U.S.

military builds up forces in the region.

"Oil is the lightning rod right now," said Eren Osman,

managing director of wealth management at Arbuthnot Latham,

adding a reopening of the Strait of Hormuz was the key to

calming world markets.

"The biggest challenge for us as investors today is that

you've got one of the widest ranges of potential outcomes," he

said, adding he did not expect a prolonged conflict as he

believed Trump had a "pain threshold" for market losses.

Madison Cartwright, senior geo-economics analyst at

Commonwealth Bank of Australia, said Iran's control of the

Strait of Hormuz nonetheless gave it little incentive to concede

and the bank expected the war to run until at least June.

The clampdown on the Strait has sent prices for oil, gas,

fertiliser, plastic and aluminium surging, along with fuel for

planes and shipping. Prices for food, pharmaceuticals and

petrochemical products are all set to rise.

That is particularly bad news for Asia, as much of the

region is highly dependent on energy from the Middle East.

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

dropped 1.8%.

European stocks were last up 0.3%, while S&P 500

futures and Nasdaq futures pointed to gains of

about 0.5% apiece.

"The longer the Strait remains closed, the sharper the

drawdown in buffer supplies that could spark dramatic increases

in the price of crude oil, natural gas and other commodities,"

warned Bruce Kasman, global head of economics at JPMorgan.

"A scenario in which the Strait remains closed for an

additional month would be consistent with oil prices rising

towards $150/bbl and constraints on industrial consumers of

energy supply."

Brent crude rose 3% to $116 a barrel, on course for

a 60% gain in March that would outpace the monthly jump that

followed Iraq's invasion of Kuwait in 1990. U.S. crude

climbed 2% to $101.67.

FED IN FOCUS AS PAYROLLS LOOM

The inflationary threat has led investors to revise up the

outlook for interest rates almost everywhere. U.S. Federal

Reserve Chair Jerome Powell will have a chance to air his own

views at an event later on Monday and the influential head of

the New York Fed, John Williams, is also talking.

Data on U.S. retail sales, manufacturing and payrolls this

week will provide an update on how the economy is faring.

The energy shock, combined with pressure on fiscal budgets from

higher borrowing costs and the need for more defence spending,

has hit sovereign bond markets. Ten-year U.S. Treasury yields

were last at 4.3959%.

Heightened volatility in markets has tended to benefit the

U.S. dollar as the world's most liquid currency. The U.S. is

also a net energy exporter, giving it a relative advantage over

Europe and much of Asia.

The dollar index was trading near a 10-month high at 100.26,

broadly flat on the day.

Yet more warnings of possible intervention from the Japanese

authorities did see the dollar ease 0.3% to 159.775 yen

. It crossed the 160 barrier last week for the first

time since July 2024 when Japan last acted to buy yen.

The euro dipped 0.1% to $1.1493, not far from a

March trough of $1.1409.

In commodity markets, gold gained 0.9% to $4,534 an ounce

, having recently drawn scant support as a safe haven or

as a hedge against inflation risks.