* Dollar sets fresh 2018 high on Italy jitters
* U.S. stocks close mixed, pare losses after Trump announcement
By Herbert Lash
NEW YORK, May 8 (Reuters) - Crude prices pared losses that earlier on Tuesday ran as deep as 4 percent after U.S. President Donald Trump said the United States will withdraw from the Iran nuclear deal, while the dollar edged off fresh 2018 highs.
Brent futures, the global crude benchmark, briefly turned positive after Trump announced the U.S. withdrawal from the 2015 international agreement aimed at stopping Iran from obtaining a nuclear bomb.
Trump said the United States was reimposing the "highest level of economic sanctions" on Iran, but he did not provide details.
Oil prices plunged earlier as markets were rattled by media reports on doubts over whether Trump would withdraw from the Iran nuclear deal as most had expected.
U.S. crude settled down $1.67 at $69.06 per barrel and Brent settled down $1.32 at $74.85. Both contracts continued to pare losses in post trade.
It was the busiest day in U.S. front-month contracts since August, and for Brent the busiest in almost a month.
Oil prices had been supported by expectations that Trump would pull out of the deal, which could crimp Iranian crude exports and feed geopolitical tensions in the Middle East, home to one-third of the global daily oil supply.
"Trump's announcement had been baked into the cake in recent days, hence we saw prices selling off today given the air of certainty surrounding it," said Matt Smith, director of commodity research at ClipperData.
The announcement weighed heavily on some hard currency bonds issued by Iranian neighbors Turkey and Iraq, as well as Lebanon, which suffered the biggest declines.
Lebanese markets had already come under pressure after Sunday's election underscored Tehran's growing clout in the region. Lebanon's 2022 bond issue <XS0559237796=TE > lost more than 1.4 cents to trade at levels last seen nearly six months ago, according to Tradeweb data.
The dollar advanced to new highs for 2018 against a basket of six trading currencies on worries about political turmoil in Italy. Some gains were later pared on the U.S. decision to withdraw from the Iran deal.
Commodity-linked and emerging market currencies slid on worries about the U.S. withdrawal, which would curb risk appetite in financial markets.
"Overall it doesn't change the story on dollar strength," said John Doyle, vice president of dealing and trading at Tempus in Washington.
The dollar index was last up 0.38 percent at 93.105. The euro slid 0.49 percent to $1.1861, after earlier hitting $1.1836, its weakest level since late December.
The Japanese yen was little changed against the dollar at 109.06 yen.
Stocks on Wall Street closed mixed. Trump's announcement had been a telegraphed policy position and did not surprise the market, said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.
"The door is open to try again which is probably less harsh than what he could have said," Battle said.
MSCI's gauge of global equity markets fell 0.03 percent while the pan-European FTSEurofirst 300 index rose 0.04 percent to close at 1,528.27.
The Dow Jones Industrial Average rose 2.75 points, or 0.01 percent, to 24,360.07. The S&P 500 fell 0.71 points, or 0.03 percent, to 2,671.92, and the Nasdaq Composite added 1.69 points, or 0.02 percent, to 7,266.90.
Italian government bond yields jumped, lifting southern European peers, as the possibility of an early election increased with the largest anti-establishment parties polling strongly.
The Italy/Germany 10-year government bond yield spread hit its widest in three weeks at 128 basis points, while Italian 10-year yields shot up to yield 1.863 percent.
Benchmark U.S. Treasury 10-year notes last fell 6/32 in price to yield 2.9741 percent.
Reporting by Herbert Lash Aadditional reporting by Caroline Valetkevitch and Sinead Carew in New York; Editing by Nick Zieminski, Leslie Adler and Susan Thomas