Tehran said it had halted its reprisal over commander Qasem Soleimani after it targeted US forces in Iraq with a missile strike, with Foreign Minister Mohammad Javad Zarif tweeting that the country does "not seek escalation or war".

The Pentagon said it was still "working on initial battle damage assessments" after bases at Ain al-Asad and Arbil in Iraq -- which house US and coalition forces -- were targeted by more than a dozen ballistic missiles.

There were no immediate reports on casualties. US President Donald Trump said the assessment was underway, but added on Twitter: "So far, so good".

Further instability came after a Ukrainian Boeing 737 crashed shortly after taking off from Tehran airport, killing at least 170 people.

West Texas Intermediate and Brent Crude later pared their gains. At around 0700 GMT WTI sat at $63.20 up 0.80 percent, and Brent was at $68.93, 0.97 percent up.

"Higher oil prices pose significant economic risks to Asia, given its heavy reliance on that region for its oil imports," Stephen Innes, chief Asia market strategist at AxiTrader, noted.

He added that oil importers with chronic trade deficits -- like India, Indonesia, the Philippines -- will be particularly vulnerable to oil price shocks.

Oil markets have been unsettled since Friday's killing in a US drone strike of Iranian general Qasem Soleimani, one of the most important figures in the country's government.

The assassination sparked an outpouring of rage and grief in Iran, along with a growing drumbeat of threats of revenge, and warnings of a possible war that could engulf much of the Middle East.

Safe haven assets also rose Wednesday as investors dumped stocks and headed to the hills.

Gold was up more than two percent, surging above $1,600 an ounce for the first time in six years, before falling back slightly.

Innes also noted that a further escalation is likely to attract more safe-haven flows to gold.

He cautioned that "surges in geopolitical risk can, by their nature, be short-lived and volatile."

"Still, it's tough not to get encapsulated by the heat of the moment when it comes to the fog of war," he said.

The Japanese yen, where investors traditionally take refuge in times of uncertainty, was also up, adding fuel to the fire in Tokyo, where the Nikkei 225 index fell 1.57 percent to 23,204.76 at the close of the day, while the broader Topic index went down 1.37 percent to 1,701.40.

"Though we'll see the market react to the latest strike today, we don't see that as a long-term risk-off theme," said Chen Haoyang, a managing director at Shanghai Leader Capital Co.

However, a possible market rout faded as Asian bourses got going in earnest, with early declines slowing.

By around 0700 GMT, Sydney was down 0.43 percent and Shanghai's main index had lost 1.22 percent, or 37.91 points, to close at 3,066.89.

In Tuesday trade, US stocks had finished slightly lower while European markets were broadly flat -- Frankfurt outperforming its peers with a 0.8-percent gain.

- Key figures around 0730 GMT -

Tokyo - Nikkei 225: DOWN 1.57 percent at 23.204,76 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,066.89 (close)

Hong Kong - Hang Seng: DOWN 0.83 percent at 28,087.92 (close)

Brent Crude: UP 45 cents at $63.15 per barrel

West Texas Intermediate: UP 59 cents at $63.63

Pound/dollar: UP at $1.3146 from $1.3095

Euro/pound: DOWN at 84.76 pence from 84.93 pence

Euro/dollar: UP at $1.1149 from $1.1159

Dollar/yen: DOWN at 108.43 from 108.44 yen

London - FTSE 100: DOWN 0.4 percent at 7,542.24

New York - Dow: DOWN 0.4 percent at 28,583.68 (close)