(Updates at 0413 GMT)

By Ankur Banerjee

SINGAPORE, July 31 (Reuters) - Asian stocks rose on

Wednesday and the yen was volatile after the Bank of Japan

raised interest rates, while investors assessed contrasting

results from tech bellwether Microsoft ( MSFT ) and chipmaker AMD that

suggested a divide in the AI landscape.

Oil prices rose from seven-week lows on escalating tension

in the Middle East after the Palestinian militant group Hamas

said its leader Ismail Haniyeh was killed in Iran's capital of

Tehran.

The BOJ also laid out a detailed plan for quantitative

tightening to pare monthly bond buying in stages, to about 3

trillion yen ($19.6 billion) by January-March 2026, as it raised

its overnight call rate target to 0.25% from zero to 0.1%.

Japan's benchmark Nikkei was down 0.19% in choppy

trading, while the yields on Japanese government bonds inched

lower after the decision.

The yen was volatile, swinging between gains and

losses. It was last flat at 152.81 a dollar, but still on course

for a gain of more than 5% in July.

The yen started the month rooted near 38-year lows of

161.96, weighed down by the wide gap between interest rates in

Japan and other developed nations.

But factors such as likely official intervention, a sell-off

in equities and a reassessment of popular carry trades helped

the currrency rebound to a 12-week high last week.

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

was 0.9% higher, with Chinese shares soaring on

Wednesday. Blue-chip stocks were up about 2%, while

Hong Kong's Hang Seng was also 2% higher.

Data showed China's manufacturing activity shrank for a

third month in July, keeping alive expectations that Beijing

will need to launch more stimulus as a protracted property

crisis and job insecurity hold back growth.

Central banks dominate investor attention on Wednesday, with

a Federal Reserve decision due later in the day, with markets

expecting the U.S. central bank to stand pat on rates but

indicate rate cuts are on the way.

Investors are jittery about the AI frenzy and tech

valuations as results from tech bellwethers reinforced the idea

that the payoff in hefty AI investments may take longer than

first thought.

Disappointing earnings from Microsoft ( MSFT ) sent its

shares lower, along with those of other tech firms, while strong

earnings from Advanced Micro Devices ( AMD ) spurred a rally in

chip stocks. Nasdaq futures rebounded, and were last up

0.7%.

FED AWAITED

While the Fed is widely expected to hold interest rates, the

spotlight is squarely on whether it opens the door to a

September cut.

Markets are fully pricing in a cut of 25 basis points in

September, with roughly 68 bps of easing priced in for the year.

The dollar index, which measures the U.S. currency

against six rivals, was at 104.41 and is down 1.36% for July.

However, some analysts expect the Fed to stay cautious as

the labour market is still tight.

The Australian dollar sank to a three-month low,

while stocks soared more than 1% as a soft inflation

report squashed lingering speculation that interest rates would

have to rise again.

In commodities, U.S. crude was 1.65% higher at $75.98

per barrel and Brent was at $79.8 per barrel, up 1.49%

on the day.