* Equities rebound as investors gird for earnings test

* Rising Middle East tensions keep oil prices near 1-month

high

* Inflation worries buoy yields, rate hike wagers

By Ankur Banerjee

SINGAPORE, July 21 (Reuters) - Asian stocks gained on

Tuesday as mediation efforts in the Middle East pushed oil

prices away from a one-month high, while investors braced for a

slate of corporate earnings that will test an under pressure AI

trade.

Yemen's Iran-aligned Houthis said they would impose a naval

blockade on Saudi Arabia, a move that could further disrupt

energy supplies, amid attacks between the U.S. and Iran, even as

efforts were being made to revive a fragile ceasefire.

Brent crude futures eased 0.38% to $88.88 per barrel

in early trading on Tuesday as investors latched on to hopes of

a resolution. Brent hit its highest since mid-June at $91.42 a

barrel in the previous session.

A senior Iranian official told Reuters on Monday that Tehran

had received a proposal from mediators for a 10-day ceasefire,

intended to pave the way for a lasting agreement to end the war

that began on February 28 with U.S.-Israeli attacks on Iran.

"I think we've got a really strange situation that investors

are still trying to look at things with a glass half full view,

as we've seen this all before a few months ago and want the same

outcome," said Nick Twidale, chief market strategist at ATFX

Global in Sydney.

Twidale noted that concern has to be growing that things

could get out of hand and the conflict really escalates across

the region. "Feel we might see one catalyst that pops things and

then we are off to the races," he said.

In stocks, MSCI's broadest index of Asia-Pacific shares

outside Japan was 0.25% higher after dropping

for three straight sessions. Japan's Nikkei gained over

1% while South Korea's KOSPI rose nearly 3%.

U.S. stock futures were slightly higher while

European futures were down 0.6% in early trading.

Global stocks, led by chipmakers, have been hit by severe

volatility in recent weeks as investors fret about high

valuations, pace of profit growth and whether the investment

into AI infrastructure will yield tangible results.

AI'S EARNINGS TEST

Investor focus this week will be on earnings from Alphabet

and Intel ( INTC ) along with other firms to gauge the

impact of the war and whether the AI trade has more room to run

given sky-high profit expectations for the second-quarter.

Strong earnings from Asian chip bellwethers Samsung

Electronics ( SSNLF ) and TSMC in recent weeks were

not enough to satisfy investor expectations, underscoring the

challenge facing the industry.

"While demand for AI hardware remains red hot, with

companies barely able to keep up supply, investor expectations

for earnings have become increasingly lofty, rendering the

sector vulnerable even to a marginal adjustment in projections,"

said Fred Neumann, chief Asia economist at HSBC in Hong Kong.

"The economic backdrop is becoming more challenging as well,

with rising energy prices and higher interest rates complicating

the outlook and showing that even the AI hardware sector is not

entirely immune to such broader developments," Neumann said.

Escalating U.S.-Iran tensions have also brought back

inflationary worries and pushed Treasury yields higher. The

2-year note yield, which typically moves in step with

Federal Reserve interest-rate expectations, was at 4.206% in

Asian hours after gaining 4 basis points on Monday.

Traders are pricing in 33 basis points of interest rate

increases this year, with a hike fully priced in for October.

The dollar was steady against most major currencies

supported by safe-haven flows. The euro last bought

$1.14145, while the Japanese yen was at 162.51 per

dollar, keeping traders on alert for intervention from Tokyo.