Stock markets mostly retreated and the dollar dropped on Tuesday on the eve of key US inflation data.

Investors are on edge ahead of Wednesday's figures, with some observers warning that an above-estimate reading on inflation, which is already at a four-decade high, could spur another sharp market sell-off.

There is a growing expectation also that central bank interest rate hikes aimed at curbing soaring prices will go too far and tip the global economy into recession.

Swissquote Bank analyst Ipek Ozkardeskaya said the recent drop in energy and commodity prices "should have a cooling effect on inflation, yet, higher labour costs could keep inflation sticky at undesirably high levels".

Oil prices rose but remain around six-month lows as recession fears mount and traders fret over the impact on demand. They are keeping tabs also on Iran nuclear talks after the European Union submitted a "final text" at negotiations to salvage a 2015 deal. An agreement could open the way for Tehran to resume sales of crude on international markets, partly helping to plug a hole left by the ban on Russian exports following the invasion of Ukraine. 

Edward Moya, analyst at OANDA trading group, said "it seems unlikely a breakthrough will happen anytime soon. Tehran seems like they are willing to negotiate, but an imminent decision to agree to the EU's proposal seems unlikely", he added.

European and Asian stock markets mainly retreated after Wall Street provided a glum lead overnight. Tech firms took a hit following a disappointing earnings report from chip giant Nvidia, seen as a warning that the end of the downturn was still some way off.

"While it's tempting to buy into the narrative that we've seen the lows of the year, none of the price action thus far serves to support that conclusion," said CMC Markets analyst Michael Hewson. "Nvidia's profit warning merely serves to underline the challenges facing, not only the tech sector, but the wider global economy."

Nvidia's profit warning merely serves to underline the challenges facing, not only the tech sector, but the wider global economy- CMC Markets analyst Michael Hewson

Hong Kong reversed a morning rally after its government denied claims it was considering removing an extra stamp duty for mainland Chinese buying property in the city.