Markets consolidated on Tuesday as investors remained wary of the impact from high oil prices on growth and hoped the European Central Bank's upcoming second liquidity injection will support sentiment and revive risk appetite.

The euro pulled back from recent highs and the yen halted its broad slide on Tuesday, while oil prices snapped a week-long rally and helped buoy the Standard & Poor's 500 Index <.SPX> on Monday to its highest level since June 2008.

MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> edged up 0.3 percent, after falling about 0.7 percent the previous session, weighed by the rising oil prices.

Japan's Nikkei average <.N225> opened down 0.7 percent, after touching a seven-month high on Monday when the yen hit a nine-month low against the dollar and aided battered exporters. <.T>

The unresolved euro zone debt crisis continued to cap the market and the recent oil price spike added to concerns.

Although the issues surrounding Greek PSI and additional financial resources for Europe will likely dominate headlines, we believe that the upcoming LTRO and behaviour of energy prices are more important for market sentiment, said Barclays Capital analysts.

Greece is proceeding with scheduled steps to restructure its huge debts, setting a March 8 deadline for private holders of its bonds to participate in an unprecedented bond swap. Market reaction was muted after Standard & Poor's on Monday cut Greece long-term ratings to 'selective default'.

The ECB will conduct a longer term refinancing operation on Wednesday with analysts focusing on the size of the gross allotment as well as net new liquidity. A poll showed 30 euro money market traders expect the ECB to allot 500 billion euros, with forecasts ranging from 200 billion to 750 billion euros.

The ECB's first liquidity injection into the system in late December helped stabilise markets by removing concerns about a liquidity crunch in Europe.

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ECB in graphics: http://link.reuters.com/neg32s

Graphic on Japan, China and India's Iran oil imports: http://link.reuters.com/saf26s

For a 24-hr technical outlook on Brent: http://graphics.thomsonreuters.com/WT1/20122702091038.jpg

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The euro stood steady at $1.3415, off a near three-month high of $1.3487 reached on Friday. The dollar eased 0.2 percent against the yen at 80.47 yen, retreating from a nine-month high of 81.66 yen hit on Monday.

OIL PAUSES

U.S. and Brent crude oil futures extended losses by more than $2 a barrel in post-settlement trading on Monday, as overbought conditions and a warning from the Group of 20 leading economies about the risks to global growth from higher oil prices sparked a sell-off.

Brent fell $1.30 to settle at $124.17 a barrel, after ending at a near 10-month peak above $125 a barrel on Friday. U.S. crude fell 0.6 percent to $107.96 a barrel on Tuesday.

Top oil producer Saudi Arabia increased exports sharply in the past week and is offering extra supplies to its biggest customers worldwide in what industry sources said appeared to be a bid to tame runaway crude prices.

Oil prices have been lifted by heightening tension between Iran and the West over Tehran's nuclear programme which raised concerns about supply disruptions.

When oil prices rise because of a drop in supply or an expected drop in supply that is universally negative for growth and inflation, UBS said in a research note.

POSITIVE FACTORS

While Europe struggled, fresh U.S. data showed contracts for

home resales rose to a near two-year high in January, boosting optimism that the housing market may be recovering.

In Europe, the highly-indebted and struggling Portugal will likely win a positive assessment for its economic reform and cost-cutting efforts from the European Union, the ECB and the International Monetary Fund. That should ensure approval of the next tranche of money under a bailout.

The German parliament endorsed a recently approved second bailout for Greece with a comfortable victory.

Sentiment improved in Asian credit markets, with the spreads on the iTraxx Asia ex-Japan investment-grade index tightening by 2 basis point early on Tuesday.

(Editing by Michael Perry)