Crude oil fell towards $106 a barrel on Tuesday as the euro lingers near 2-year lows on renewed fears of eurozone debt contagion, counterbalancing bullish sentiment from renewed fears of Middle East supply disruptions.

"There is a tug of war between a renewed geopolitical premium and the prospect of a weakening global economy on the back of the eurozone crisis," said Olivier Jakob at consultancy Petromatrix.

Brent crude for July delivery fell 23 cents to $106.88 per barrel by 1210 GMT, after hitting a high of $108.04 in the previous session.

U.S. crude oil futures rose 17 cents to $91.03, after rising more than $1 per barrel with the return of U.S. market players from Memorial Day weekend in the U.S.

The euro slipped against the dollar on Tuesday, edging closer to two year lows as investors and speculators sold the common currency on persistent worries over Spain's escalating borrowing costs and its weakening banking sector.

"It's mainly the euro's weakness pushing Brent down," said James Zhang, analyst at Standard Bank, "Investors are moving away from the euro as uncertainties over Spain's debts mount."

Spain's decision to recapitalise nationalised lender Bankia means its debt could rise above expectations.

Spain will recapitalise Bankia by issuing new debt, not by injecting bonds into the lender. The bank asked for 19 billion euros in government help, in addition to 4.5 billion the state has already pumped in.

This method could be used to prop up other troubled lenders - moves which would push the country's debts above the 79.8 percent of economic output which had been expected this year.

Outside of Europe, Chinese data this week is likely to affirm economic weakness in the world's No. 2 oil user even as the government steps up stimulus measures.

A Reuters poll showed China's official manufacturing managers' index may have eased in May from a 13-month high in April.

"Companies are making contingency plans for the Grexit (Greek eurozone exit) and Spanish troubles so they are investing less. Nobody wants to be caught with high inventories like in 2008 - so factories are reducing output. I think this explains the disappointing Chinese data," said Jakob of Petromatrix.

IRAN

Stalled talks surrounding Iran's nuclear plans continued to underpin oil prices that have fallen around 10 percent this month because of the debt crisis in Europe that could lead to a Greek exit from the euro zone and uncertainty facing the U.S. and Chinese economies.

Tension between major oil producer Iran and the West remains high after inconclusive discussions last week on Tehran's nuclear programme, increasing the risk of conflict in the Middle East and disruption of global oil supplies.

Iranian officials have declined to grant access to a complex at the centre of Western suspicion that Iran is developing nuclear weapons capability. Tehran has denied having any such ambition.

The International Atomic Energy Agency said last week satellite images showed "extensive activities" at Parchin.

Six world powers failed to persuade Iran last week to halt its most sensitive nuclear work, but they will meet again in Moscow next month to try to end the stand-off.