(Updated at 4:07 p.m. ET (2007 GMT))

* Gulf peace talks uncertain as US builds up troops

* European stocks end higher after Asia declines

* Brent crude extends gains

* Aluminium near four-year highs after strikes on

producers

By Chris Prentice and Iain Withers

NEW YORK/LONDON, March 30 (Reuters) - Benchmark oil

prices extended gains toward their largest ever monthly increase

on Monday, as major Wall Street indexes were mixed in choppy

trade and investors focused on the war on Iran that they fear

will drive inflation and raise the risk of recession across the

globe.

U.S. Treasury prices rose, with yields declining across the

curve as mounting global growth concerns eclipsed inflation

worries. Investors are increasingly uneasy about a war entering

its fifth week with no clear path to resolution.

Trump said the U.S. was in serious discussions with a "more

reasonable regime" to end the war that has widened since it

began a month ago with U.S. and Israeli attacks on Iran.

But he repeated his warning to Iran to open the Strait of

Hormuz or risk U.S. attacks on Iranian oil wells and power

plants.

Federal Reserve Chair Jerome Powell said the U.S. central

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

inflation, noting policymakers typically look through shocks

such as those from higher oil prices.

Data showed inflation in Germany, the euro zone's largest

economy, gathered pace in March due to surging energy prices.

Economists see further increases ahead.

CRUDE PRICES KEEP RISING

Brent crude futures settled up 0.2% at $112.78 per

barrel, as U.S. crude surged 3.3% to $102.88.

On Wall Street, the Dow Jones Industrial Average rose

0.11% to 45,216.14. The S&P 500 fell 0.39% to 6,343.72

and the Nasdaq Composite lost 0.73% to 20,794.64.

The pan-European STOXX 600 reversed early losses to

advance and Europe's broad FTSEurofirst 300 index also

rose.

"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 geoeconomics analyst at

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

Strait of Hormuz, conduit for about a fifth of the world's oil

and liquefied natural gas, 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.

Aluminium prices surged near four-year highs after Iranian

airstrikes on two major Middle Eastern producers over the

weekend.

That is particularly bad news for Asia. MSCI's broadest

index of Asia-Pacific shares outside Japan

closed lower by 1.96% and Japan's Nikkei fell 2.79%.

"A scenario in which the Strait remains closed for an

additional month would be consistent with oil prices rising

towards $150 a barrel and constraints on industrial consumers of

energy supply," said Bruce Kasman, global head of economics at

JPMorgan.

FED IN FOCUS AS PAYROLLS LOOM

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.

The yield on benchmark U.S. 10-year notes fell

for the first time in three days, down 9.2 basis points to

4.348%. The 2-year note yield, which typically moves

in step with Fed interest rate expectations, fell 8.2 basis

points to 3.834%.

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, which measures the dollar against a

basket of currencies including the yen and the euro, rose 0.2%

to 100.51.

After more warnings of possible intervention from the

Japanese authorities, the yen strengthened 0.39% to 159.69

against the dollar.

Spot gold rose 0.49% to $4,514.34 an ounce, and

futures settled 0.7% higher at $4,557.50.