(Updates ahead of U.S. market open )

* Chipmakers continue to drag stock indexes lower

* Nasdaq futures down 2%, S&P 500 futures fall 1%

* Oil prices up more than 10% for the week

* Japanese authorities back to jawboning as yen struggles

By Samuel Indyk and Rae Wee

LONDON, July 17 (Reuters) - A prolonged selloff for

chipmakers continued to ripple through global stock markets on

Friday, triggering losses in Asia and Europe and setting up

steep falls in the United States as investors abruptly

reassessed the durability of the artificial-intelligence-driven

rally.

Renewed military strikes in the Middle East were also

weighing on risk sentiment, keeping oil prices elevated and

reigniting concerns about inflation and growth.

In Europe, the STOXX 600 fell 0.5%, with major

bourses in Paris, Frankfurt and London

all trading lower.

In the U.S., Nasdaq futures slumped 1.7% while S&P

500 futures fell 0.8%.

Losses were starker across Asia, with MSCI's broadest index

of Asia-Pacific shares excluding Japan down more

than 3%, while the Nikkei tumbled 4%, leaving it down

12% from a recent peak.

Taiwan's stock market bore the brunt of the selloff,

plunging more than 6% for its worst day since U.S. President

Donald Trump's "Liberation Day" tariffs, while China's blue-chip

index fell 3.6%.

In Hong Kong, the Hang Seng Index was down 1.8%, and

a 4.4% slide in the Hang Seng Tech Index marked its

sharpest fall since April 2025.

Europe's relative lack of a technology hardware sector has

meant it tends to be more insulated than other markets from a

sharp selloff in tech stocks.

"From a European perspective, there's less exposure towards

tech and more exposure to defensives and staples and that is why

it looks a little better," said Lars Skovgaard, investment

strategist at Danske Bank.

The selloff came even as Taiwan's TSMC said

second-quarter profit blew past forecasts. And ASML,

the world's dominant supplier of equipment needed to make

high-tech computer chips, raised its 2026 sales forecasts

earlier this week.

"Retail investors have borrowed to trade in this really

impressive AI rally, so I think the unwinding of leveraged

positions will definitely exaggerate the decline as well. It

will feed into the market," said Fabien Yip, a market analyst at

IG.

Markets in South Korea were closed on Friday for a holiday, a

day after authorities said they would temporarily ban new

listings of exchange-traded funds (ETFs) that are tied to

certain major technology firms, while raising minimum required

deposits for retail investors to invest in such products, in an

effort to curb volatility.

OIL CLIMBS AGAIN

In commodities, oil prices were on the rise, with Brent

crude futures up 2% at $86.01 a barrel, while U.S. crude

advanced 2.5% to $80.92 per barrel. For the week, Brent

and U.S. crude futures were set to rise more than 11% each,

marking their largest gains since April.

Iran said it launched fresh attacks on U.S. facilities in the

Gulf on Friday after a sixth consecutive night of U.S. strikes

on Iranian military facilities.

"You don't see appetite for adding risk right now," said

Danske Bank's Skovgaard.

"As long as there is no progress on oil price developments,

then you don't need to buy into the market. For that, it's just

another negative."

ASSESSING THE FED RATE PATH

The dollar held steady on Friday and was set to end the week

little changed as receding expectations of Federal

Reserve rate increases this year were offset by renewed

safe-haven demand.

Investors are now pricing in roughly 27 basis points worth of

Fed hikes by December, following benign U.S. CPI and

PPI readings this week.

The euro was flat at $1.1438, while sterling

fetched $1.3451 as Andy Burnham was confirmed as the new leader

of Britain's governing Labour Party on Friday, replacing Keir

Starmer. Burnham will formally become prime minister on Monday,

with markets closely watching his pick for finance minister.

The yen, meanwhile, languished near a 40-year low and

last stood at 162.31 per dollar, prompting renewed jawboning

from Japanese Finance Minister Satsuki Katayama to try to

support the currency.