Interest rate speculation set the tone for financial markets on Tuesday with U.S. bonds focussing on talk the Federal Reserve has nearly finished raising rates and the yen under pressure as investors bet Japanese rates would stay low. Stocks in Asia and Europe were mixed in trading thinned by Christmas holidays in some markets, while oil prices fell by 1 percent thanks to warmer-than-normal weather in the United States and a recovery in crude production from Nigeria. The first inversion in the U.S. yield curve in five years preoccupied markets, with investors prepared to accept a lower rate of return for long-dated bonds than for short-rated ones. "This clearly suggests we are very close to the end of the tightening cycle...and is not an indication of a recession," said Michael Rottmann, strategist at Hypovereinsbank. "I think the Fed will raise interest rates by another 25 basis points to 4.50 percent which will be the peak for this cycle," he said. The yield on U.S. 10-year Treasuries fell below that on 2-year notes, highlighting expectations that the Federal Reserve's 18-month campaign of raising interest rates is nearing an end. The inversion of the yield curve is rare because investors tend to demand higher yields on longer-dated bonds to compensate for the risk of higher inflation later. Previous inversions have typically signalled a slowing economy or recession and debate has raged over what an inverted curve means in the current environment of robust growth and relatively subdued inflation. The yield on 10-year Treasuries traded below 4.38 percent at one stage, while the 2-year yield hit a high around 4.41 percent. Both traded flat around 4.40 percent at 1026 GMT. The move had little impact on euro zone government bonds, with the yield on 10-year bonds up 3.3 basis points at 3.33 percent.