* Divided Fed stands pat on rates, long-end bonds slump

* Stocks stumble as worries on AI trade rattle markets

* Oil near $90/barrel amid Middle East hostilities

By Ankur Banerjee

SINGAPORE, July 30 (Reuters) - Asian stocks struggled for

direction on Thursday, nursing steep losses for the week on

mounting investor jitters around the AI trade, while a divided

Federal Reserve kept interest rates steady, leaving bond markets

questioning where rates are headed.

Brent futures slipped below $90 per barrel, after

jumping over 7% a day earlier as fighting in the Middle East

escalated, although data showed tankers continued to make their

way out of the region despite the continued missile and drone

strikes.

The dollar was on the defensive after the U.S. central bank

held steady although the split decision left investors confused

on whether the Fed will see through rate hikes to combat

inflation. Yields on longer-dated U.S. Treasuries rose to

19-year highs.

Asian chipmakers have been the centre of attention this week

after a deep selloff in South Korean stocks that wiped more than

$2 trillion from the country's equity market rocked markets and

investors freted about the returns from massive AI spending.

The KOSPI rose 4% in choppy trading on Thursday, but

is staring at a 12% weekly decline that prompted Finance

Minister Koo Yun-cheol to apologise for the introduction of

single-stock leveraged ETFs.

"Given that the fundamental thesis remains intact, there

does appear to be an irrational, panic-like element to the

current selling," said Gina Kim, portfolio manager for emerging

market equities at Nordea Asset Management in Singapore.

"I cannot comment on when the panic will stop as such but

some indicators to look out for would be margin balances in both

Taiwan and Korea for retail investors. Both are declining but we

would ideally need to see some levelling off," said Kim.

Chipmaker Samsung Electronics said its operating

profit jumped 19-fold to a record in the second quarter, helping

lift beaten-down investor sentiment.

MSCI's broadest index of Asia-Pacific shares outside Japan

rose over 1% in early trading. Japan's Nikkei

was 2% higher, but set for a 3% drop in the week.

Earnings from U.S. megacaps Meta and Microsoft ( MSFT )

outlined the contrasting fortunes of the companies that

are able to showcase their ability to generate cash even as they

spend to build out AI infrastructure.

Microsoft ( MSFT ) said it expects to keep generating cash through

the fiscal year 2027 that just started, lifting its shares,

while Meta reported a 91% drop in second-quarter free cash flow,

sending its stock down.

Nasdaq futures rose 1.2% in Asian hours while

European futures were 0.3% higher.

FED LOOKING TO MARKETS FOR CUES

In a post-meeting media conference, Fed Chair Kevin Warsh

vowed to contain inflation but declined to offer any guidance on

what action would be needed by the central bank.

Warsh noted that bond yields since the Fed's last monetary

policy meeting had risen notably - investors have priced in

interest rate increases - and he welcomed that move, even while

saying it did not mean the central bank needed to ratify it with

action.

Yields on 30-year U.S. bonds were at 5.2039%,

having hit their highest since June 2007 at 5.2273% late in New

York trading.

"What we heard was a fairly defiant message about bringing

inflation back to target, albeit with very little substance on

exactly how that would be achieved," said Chris Weston, head of

research at Pepperstone.

Fed funds futures now implied around a 60% chance

the Fed would lift rates at its next meeting in September and

had 33 basis points of tightening priced in by year-end.

"The Fed is likely to face ongoing questions around its

credibility," said Kerry Craig, global market strategist at J.P.

Morgan Asset Management.

"The gap between the Fed's rhetoric and its actions may pose

a challenge for market pricing. A new chair faces a divided

committee and a bond market that's starting to question the

central bank's resolve."