(Updates to European morning)

* SK Hynix ( SKHY ) earnings fail to soothe anxiety as selloff

extends

* Eyes on slate of big tech earnings in test of AI trade

* Dollar stands tall ahead of delicately poised Fed decision

* Oil prices jump on fresh attacks in Middle East

By Ankur Banerjee

SINGAPORE, July 29 (Reuters) - Asian stocks sank on

Wednesday, extending a vicious selloff as anxiety about AI

valuations and whether the massive spending will deliver returns

rattled investors ahead of crucial earnings from big tech firms

and a U.S. Federal Reserve policy decision.

Oil prices jumped after fresh attacks in the Middle East

shattered the relative calm of recent days in the U.S.-Iran war

as investors fret about the impact of depleting supplies on

prices and global rates.

Asian chipmakers have been at the epicentre of this year's

AI-driven rally and, more recently, investor concerns about its

staying power, sparking sharp market swings.

South Korea's KOSPI, which had more than tripled over 12

months to June, sank over 11% to its lowest level since early

April, after dropping more than 10% on Tuesday. Taiwan stocks

fell 5% while Japan's Nikkei slid 2.6% as the

rout deepened across the region.

That left MSCI's broadest index of Asia-Pacific shares

outside Japan down over 2.45% after shedding

3.6% on Tuesday.

Shares of SK Hynix ( SKHY ) fell 9% as investors digested

earnings that showed the chipmaker increased quarterly operating

profit more than sixfold but missed lofty expectations.

"SK Hynix ( SKHY ) delivered strong results, but in today's AI

market, strong is no longer enough," said Gary Tan, portfolio

manager at Allspring Global Investments.

"Investors were looking for additional catalysts,

particularly around long-term agreements and shareholder

returns, to support a memory sector that has become the

epicentre of the AI trade," Tan added.

Earnings from the "Magnificent Seven" members Microsoft ( MSFT )

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.

"This round of earnings would need to prove that the huge

capital expenditure has paid off else we may see the market drag

further," said Sean Teo, sales trader at Saxo in Singapore.

Teo also said investors are now getting wary of circular

financing where a handful of companies are investing into each

other in somewhat of a closed loop where organic demand becomes

unclear.

Nasdaq futures fell 0.7% in Asian hours while European

futures slid 0.6% as the selling appeared to spread to

other regions. Hong Kong's Hang Seng index bucked the

trend and was up 1.4%.

OIL JUMPS AHEAD OF FED MEETING

Brent futures jumped over 3% to $87.19 per barrel

while U.S. West Texas Intermediate (WTI) crude rose more

than 3% to $82.08 after U.S. 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 U.S. and Israel launched strikes on February 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 U.S. 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% chance of a hike. The U.S. 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 favour 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.