By Rae Wee and Amanda Cooper

SINGAPORE/LONDON (Reuters) -Oil hit two-week highs on Monday, while U.S. futures slid and those in Europe edged up, as investors braced for more of the policy bombshells that have created a sharp divergence between the performance of U.S. markets and those elsewhere.

The week is packed with central bank meetings, including the Federal Reserve, the Bank of Japan and the Bank of England, all of which are widely expected to hold fire, as policymakers try to see through the current economic uncertainty.

Over the weekend the U.S. defense secretary said the country would continue attacking Yemen’s Houthis until they ended attacks on shipping, which drove up oil prices on Monday as investors worried about possible disruptions to supply.

Oil prices initially rallied more than 1%, before paring some of those gains on the prospect of an imminent end to the Ukraine war, which could bring more Russian energy supplies back to Western markets.

U.S. President Donald Trump said he plans to speak to Russian President Vladimir Putin on Tuesday and discuss ending the war in Ukraine, after positive talks between U.S. and Russian officials in Moscow.

Brent futures were last up 0.61% at $71.01 per barrel, while U.S. crude futures rose 0.63% to $67.60 a barrel.

Shares in Europe rose on Monday, trading comfortably above last week’s multi-week lows. The STOXX 600 was up 0.4% on the day, bringing gains for the year to 7.6%, in stark contrast to the S&P 500, which last week entered correction territory, with a year-to-date loss of 4.3%.

European stocks and the euro have rallied sharply this month, driven in large part by Germany’s plan to overhaul its fiscal policy that includes a 500-billion euro ($540 billion) fund for infrastructure and changes to borrowing rules.

Germany’s parliamentary budget committee on Sunday approved the bill, which will be voted upon in the lower house of parliament on Tuesday and by the upper house on Friday.

The euro was perched near a five-month high on Monday and last bought $1.0881.

“The idea of Germany’s fiscal loosening being more in the (euro)’s price will be assessed on Tuesday when the Bundestag votes on the package. It would be very (euro) negative if it fails to pass,” said Paul Mackel, global head of FX research at HSBC.

In China, data on Monday showed retail sales growth quickened in January-February, while a series of new policy measure from Chinese authorities to boost domestic consumption had little impact on local stocks or the yuan itself, which was steady in the offshore market at 7.2409.

Chinese equities rose 0.2%, while South Korean and Japanese stocks gained 1.7% and 0.93%, respectively.

U.S. DRUBBING

While Asia stocks started the week on a strong note, over in the United States, futures pointed to a downbeat start on Wall Street.

Stocks officially entered correction territory last week, battered by tumbling consumer confidence and general pessimism over the economy, as Trump’s erratic approach to trade policy has dented sentiment.

European and Chinese equities in particular have been major beneficiaries of U.S. market weakness, as investors move from believing in “TINA” – There is No Alternative to U.S. assets – to “TIARA” – There Is A Real Alternative – according to Andy Wong, a senior Hong Kong-based executive at Pictet Asset Management.

Nasdaq futures were down 0.71%, while S&P 500 futures fell 0.63%.

U.S. Treasury Secretary Scott Bessent said in an interview that aired on Sunday there are “no guarantees” there will not be a U.S. recession, adding to investor worries of an impending economic downturn.

“I still find it tough to advocate for anything other than selling rallies at this moment in time, and remain bearish in the short-term,” Pepperstone strategist Michael Brown said.

“There is scant sign of the current degree of policy uncertainty lifting any time soon,” he said.

Against a basket of currencies, the dollar held near a five-month low at 103.72, bringing losses this year to over 4%, as investors have slashed their bullish bets.

The yen weakened a touch to 148.85 per dollar, ahead of the BOJ’s meeting this week where it is expected to keep rates on hold, though most economists expect further policy tightening later this year.

Elsewhere, gold held just below $3,000 an ounce, having broken through that point for the first time on Friday. [GOL/]

(Reporting by Rae Wee; Editing by Kate Mayberry, Shri Navaratnam and Gareth Jones)

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