* Asian stocks join Wall Street in sharp drop

* Traders rapidly cut Fed rate cut wagers for the year

* Investors focus on oil prices, inflation risks

By Ankur Banerjee

SINGAPORE, March 13 (Reuters) - Asian stocks slumped on

Friday, poised for a second straight weekly decline as

fast-dwindling hopes of a resolution to the U.S. and Israel's

war with Iran kept oil prices aloft, casting a shadow over

global markets and spurring inflation fears.

The U.S. dollar has become the safe-haven of choice during

the tumult, putting most other currencies under pressure. The

dollar was set for a second consecutive week of gains and is up

2% since the war broke out at the end of February.

Oil prices remained close to the closely watched $100 per

barrel level, although they eased a bit in early trading on

Friday after U.S. issued a 30-day license for countries to buy

Russian oil and petroleum products currently stranded at sea.

Brent futures were last at $99.85 a barrel, while

West Texas Intermediate crude was at $95.05 a barrel.

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

eased 0.5%, on course for a 1.5% decline for the

week. Japan's Nikkei fell 1.3%, while tech-heavy South

Korean stocks slid nearly 2% and Taiwan equities

fell 1%.

With Iran stepping up attacks across the Middle East as its

new Supreme Leader Mojtaba Khamenei vowed to keep the Strait of

Hormuz shipping lane closed, investors are bracing for a

prolonged conflict and higher oil prices.

The spectre of rising inflation has led markets to rapidly

reprice what they expect from central banks this year, with

traders now anticipating just 20 basis points of easing from the

Federal Reserve compared to 50 bps of cuts priced in last month.

"Markets were positioned for Fed cuts this year but the

runway to justify Fed cuts is no longer there with the U.S.

excursion into Iran," said Prashant Newnaha, senior rates

strategist at TD Securities. "The markets are recalibrating for

a higher terminal rate."

The selloff in global stocks and bonds shows no signs of

easing. U.S. stocks fell sharply overnight and the two-year

Treasury yields, which typically move in step with Fed interest

rate expectations, scaled a six-month high on Thursday.

"With the possibility of higher oil prices still elevated,

investors should be prepared for continued volatility and

potentially further downside in the near term," said Vasu Menon,

managing director of investment strategy at OCBC in Singapore.

INFLATION WORRIES SWIRL

Jose Torres, senior economist at Interactive Brokers, said

the negative impact of rising oil prices on corporate margins,

inflation expectations, rate-cut prospects and yields is

sparking market volatility, leaving participants with few places

to hide.

"Indeed, sinking optimism about Fed rate reductions amid

strengthening cost pressures is weighing on traditional safe

havens such as silver, gold, and government debt."

The two-year note yield eased 3 bps to 3.730%

after hitting its highest level since August 22 on Thursday. The

yield has gained 35 bps in the two weeks since the war started.

The yield on the longer-dated 30-year bond has

risen 24 bps this month.

Investor focus will switch to a slate of policy meetings

next week with the Fed, the Bank of Japan, the European Central

Bank and the Bank of England all due to meet, with most expected

to keep rates unchanged. The Reserve Bank of Australia is

broadly expected to hike rates next week.

In currencies, the euro last fetched $1.1527, inching

higher on the day but still on course for a weekly decline of

nearly 1%. The dollar index was at 99.599, set for an

0.8% rise for the week.

The yen firmed a bit to 159.13 per dollar, hovering

around the 160 mark but the noise around possible intervention

has been fairly muted. Analysts said the bar for intervention

from Tokyo is higher due to the oil price shock.

"What was once a 'line in the sand' at 160 has evolved into

more of a moving goalpost," said Tony Sycamore, market analyst

at IG.

"Against such a hostile macro backdrop, it makes little

sense for authorities to waste precious intervention

ammunition-whether verbal or physical, trying to defend the

160ish level this time around."

Gold was 0.7% higher at $5,114 per ounce on Friday

but set for a 1% drop for the week.