Asian markets fluctuated Tuesday as investors struggled to maintain a global rally, with inflation continuing to niggle owing to a pick-up in oil prices while a top Federal Reserve official pressed for a series of sharp interest rate hikes.

With Wall Street closed for a holiday there were few catalysts to help extend the gains enjoyed in recent days, allowing inflation and borrowing costs to take centre stage.

Crude prices built on Monday's advance after the European Union reached a deal on a partial embargo of Russian imports as part of a punishment for its invasion of Ukraine.

Brent broke above $122 for the first time in two months and WTI was sitting around $117 as European chiefs said the latest sanction would ban purchases of Russian oil delivered by sea, though there would be a temporary exemption for pipelines.

While widely expected, the agreement adds further upside to crude just as China begins to ease Covid restrictions in Shanghai and Beijing, raising the likelihood of a jump in demand from the world's number two economy.

The lift in oil prices will help fan already elevated inflation and pile further pressure on central banks to tighten monetary policy to prevent it running out of control.

In a sign of the struggle policymakers face, German prices are rising at their fastest pace ever while Spain's topped forecasts.

In the United States, the chances of an extended period of rate hikes were increased after Federal Reserve Governor Christopher Waller said he favoured half-point hikes "for several meetings" until inflation slows towards the bank's two percent target.

He added that his goal was in line with market expectations, which is about 2.75 percent in December.

Joe Biden is due to hold talks with Fed boss Jerome Powell on Tuesday to discuss the inflation situation. US jobs data Friday will provide an update on the state of the US economy in light of soaring prices and rising rates.

The prospect of a period of rates rising higher for longer lifted the dollar against the euro, pound and yen as well as other currencies.

Asian equity markets swung through the morning, though there was some cheer from data showing China's manufacturing shrunk in May at a slower rate than expected.

Hong Kong edged slightly lower after two days of gains that saw it put on around five percent, while Shanghai was also marginally off.

Sydney, Taipei and Manila were also in the red, though Tokyo, Seoul, Singapore, Jakarta and Wellington rose.

But AXA Investment Managers' Chris Iggo warned that another 10-15 percent retreat for stocks could still be a possibility.

"The mood is temporarily better in markets," he said, adding that "I think the worst is over for bond markets but picking the bottom in equities is trickier."

Key figures at around 0230 GMT

Tokyo - Nikkei 225: UP 0.1 percent at 27,404.14 (break)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 21,092.51

Shanghai - Composite: DOWN 0.1 percent at 3,147.12

Euro/dollar: DOWN at $1.0754 from $1.0779 on Monday

Pound/dollar: DOWN at $1.2621 from $1.2650

Euro/pound: DOWN at 85.20 pence from 85.21 pence

Dollar/yen: UP at 128.10 yen from 127.59 yen

Brent North Sea crude: UP 0.4 percent at $122.20 per barrel

West Texas Intermediate: UP 2.2 percent at $117.54

New York - Dow: Closed for a holiday

London - FTSE 100: UP 0.2 percent at 7,600.06 points (close)