The dollar nudged a little higher against the yen after the previous day's sell-off but the uncertainty caused by events in the Gulf kept gains to a minimum.
Tokyo closed 0.29%, or 42.68 points, higher to finish at 14,975.97 after sinking more than 1% on Monday, while Seoul gained 0.40%, or 7.96 points, to 2,001.55.
But Sydney gave up 0.21%, or 11.6 points, to end at 5,400.7 while Shanghai slipped 0.92%, or 19.29 points, to 2,066.70. Hong Kong slid 0.42%, or 97.08 points, to 23,203.59.
With few economic catalysts to drive trade, Iraq has dominated investors' attention as militants sweep across the country, taking over key cities and heading for Baghdad.
On Monday, the jihadists battled government forces for control of a strategic northern town, while US officials considered using drone strikes against the rebels.
The fighting has raised fears over supplies of oil from Iraq, a key exporter, sending prices rocketing to highs not seen since September.
On Tuesday, dealers cashed in some of those gains, although losses were limited. In the afternoon US benchmark West Texas Intermediate for July delivery fell 39 cents to $106.51 a barrel in afternoon trade, while Brent crude for August declined 42 cents to $112.52.
On Wall Street, the three main share indices ended lower last week but edged up slightly Monday, helped by a better-than-expected rise in US industrial production.
The Dow was up 0.03%, the S&P 500 tacked on 0.08% and the Nasdaq rose 0.24%.
Attention will now turn to the Fed's policy meeting that wraps up on Wednesday.
Expectations are for the bank to cut a further $10 billion from its monthly stimulus spending and keep interest rates at record lows. Investors are more interested in what chief Janet Yellen has to say about future policy.
Kathy Lien, managing director at BK Asset Management, said the Fed could tweak its forecasts for the year to trim its unemployment projection and raise its estimate for inflation.
If that happens, "Yellen will need to provide an explanation that convinces the market (the Fed) hasn't gotten any closer to tightening", Lien said. "If she fails, the US dollar and Treasury yields will rise."
In afternoon Tokyo foreign exchange trade, the dollar was worth 102.00 yen compared with 101.84 yen in New York.
The euro bought $1.3557 and 138.29 yen, up from $1.3570 and 138.20 yen.
Gold fetched $1,265.00 an ounce at 1045 GMT compared with $1,280.00 late Monday.
In other markets, Manila closed 0.79% lower, shedding 53.52 points to 6,704.93.
Philippine Long Distance Telephone fell 0.14% to 2,846 pesos while Ayala Land tumbled 3.19% to 30.30 pesos.
Mumbai rose 1.31%, or 330.71 points, to end at 25,521.19. Jaypee Infratech rose 12.82% to 33.00 rupees while IRB Infrastructure Developers was up 7.82% to 209.60 rupees.
Kuala Lumpur added 3.02 points, or 0.16%, to 1,874.60. Sime Darby gained 0.21 percent to 9.55 ringgit and Telekom Malaysia added 0.32 percent to 6.23, while Malayan Banking slipped 0.10% to 9.81 ringgit.
Jakarta ended up 0.49%, or 24.06 points, at 4,909.52. Asia Pacific Fibers gained 1.47% at 69 rupiah, while Bank Permata lost 0.37% at 1,330 rupiah.
Singapore fell 0.48%, or 15.82 points, to close at 3,274.44. SingTel eased 0.26% to S$3.85, while property developer CapitaLand added 0.63% to S$3.19.
Taipei added 0.41%, or 37.67 points, to 9,240.6. Taiwan Semiconductor Manufacturing Co was 0.81% higher at T$125.0 while leading chip design house MediaTek gained 2.72% to T$510.0.
Wellington rose 0.28%, or 14.70 points, to 5,193.50. Fletcher Building was up 0.34% at NZ$8.96 and Telecom added 1.10% to NZ$2.75.