Oil prices jumped after fresh attacks in the Middle East shattered the relative calm of recent days in the US-Iran war as investors fret about the impact of depleting supplies on prices and global rates.

Asian chipmakers have been at the epicenter of this year's AI-driven rally and, more recently, investor concerns about its staying power, sparking sharp market swings.

South Korea's KOSPI fell 5 percent, reversing earlier gains after sinking more than 10 percent to a three-month low on Tuesday, despite strong earnings from SK Hynix.

Shares of SK Hynix fell 9 percent as investors digested earnings that showed the chipmaker increased quarterly operating profit more than sixfold but missed lofty expectations.

"With the FOMC meeting sandwiched between major US tech earnings this week, and expectations for AI capex already elevated, investors appear to be taking some risk off the table ahead of a critical test for both AI spending expectations and market liquidity," said Gary Tan, portfolio manager at Allspring Global Investments.

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MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1 percent after shedding 3.6 percent on Tuesday and was set for a monthly drop of 8 percent. Japan's Nikkei fell 1 percent and is bracing for a more than 10 percent drop in July.

Earnings from the "Magnificent Seven" members Microsoft and Meta later in the day will be a key test of the AI trade, particularly after Alphabet and Tesla spooked investors last week with negative cash flow reports.

Nick Twidale, chief market strategist at ATFX Global in Sydney, expects another tough day for Asian equities, while the news from the Middle East is also expected to weigh.

"I think the risk of a Fed hike will also concern investors, so rather than a more usual pre-Fed quieter market, I’ve got a feeling it could be a volatile day ahead," he said.

Nasdaq futures were choppy in Asian hours and were last up 0.5 percent while European futures pointed to a higher open. Hong Kong's Hang Seng index rose 1.5 percent while China's blue-chip index was flat.

Oil jumps

Brent futures jumped 3 percent to US$86.80 per barrel while US West Texas Intermediate (WTI) crude rose more than 3 percent to $81.95 after US Central Command said Iran had launched multiple ballistic missiles that were successfully intercepted.

"The latest attack highlights that the two sides remain a long way from resolving the core dispute of passage through the Strait of Hormuz that caused the earlier MOU to collapse," said Tony Sycamore, market analyst at IG.

Iran effectively shut the key waterway to ships other than its own after the US and Israel launched strikes on Feb. 28. A deal last month between Washington and Tehran partially reopened it, but the agreement collapsed in early July after Iran fired on ships using a channel it had not approved.

That has again put inflation pressures in the spotlight ahead of the Federal Reserve's policy decision due later on Wednesday. The US central bank is seen as more likely to leave interest rates steady even as a growing number of its policymakers fret openly about inflation.

The decision remains unusually hard to call under the no-guidance regime adopted by the new Fed Chair Kevin Warsh, with traders pricing in a 33 percent chance of a hike. The US dollar was perched near a one-month high ahead of the decision.

"We think the market may once again be underestimating the extent of the hawkish shift at the Fed, and that the (for now) moderate increase in energy prices may tip an already finely balanced meeting in favor of a hike this week," said Frank Flight, head of macro strategy at Citadel Securities.

"We acknowledge that it is a close call, but we now see a rate hike at the July meeting," Flight said.

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