* Oil climbs as U.S. and Iran trade attacks in the Gulf

* S&P 500 futures slip, Nikkei and KOSPI extend retreat

* Dollar edges up as market narrows odds on Fed rate hike

* Fed chair to testify this week, US CPI in focus

(Adds TSMC, updates prices)

By Wayne Cole

SYDNEY, July 13 (Reuters) - Share markets sank in Asia on

Monday as fighting intensified in the Gulf and Iran claimed to

have closed the vital Strait of Hormuz, sending oil prices

surging and rekindling inflation risks globally.

The dollar rose with bond yields as investors narrowed the

odds of a hike in interest rates from the Federal Reserve, just

a day before Chair Kevin Warsh is due to face Congress for the

first time in his new role.

Inflation figures for June on Tuesday could show some

cooling in the headline rate of 4.2% as petrol prices decline,

though some of that will reverse now that oil is rising anew.

Brent crude climbed 4.3% to reach $79.31 a barrel,

up from the recent trough of $70.14, while U.S. crude

added 4.4% to $74.62 a barrel.

U.S. officials said around 20 vessels had been escorted

through the strait in the previous 24 hours, though ship

tracking sites showed little traffic moving.

For equity investors, a lot is now riding on the coming

earnings season, where expectations are sky-high for AI-related

profits. The major banks kick off from Tuesday, while Netflix ( NFLX )

and General Electric ( GE ) are also on the docket.

"Tech continues to screen highly in our models, supported by

stand out earnings growth/momentum and attractive valuations,"

analysts at Citi wrote in a note.

"While AI volatility may remain elevated over the coming

quarter, we maintain our Overweight stance on global IT and the

U.S.," they added. "We pair these growth exposures with over

weights in cyclical regions/sectors, including Japan, financials

and materials."

S&P 500 futures dipped 0.6%, while Nasdaq futures

lost 1.3%. In Europe, EUROSTOXX 50 futures fell

0.9%, while DAX futures declined 1.0% and FTSE futures

eased 0.3%.

Japan's Nikkei shed 2.2%, having lost 1.7% last

week, while MSCI's broadest index of Asia-Pacific shares outside

Japan sank 1.8%.

TESTING THE CHIP BUBBLE

South Korea's formerly red-hot KOSPI sank 7.6%,

having already lost almost 8% last week, as leveraged bets on

semiconductor shares came under pressure. The market has emerged

as a key global barometer for chip-sector sentiment and further

losses could ripple out more broadly.

South Korean chipmaker SK Hynix's U.S.-listed

shares jumped almost 14% in their Nasdaq debut on Friday. News

that Apple ( AAPL ) had sued OpenAI and two former employees for

trade secrets theft emerged after markets closed.

Chip giant Taiwan Semiconductor Manufacturing Co. ( TSM )

reports results on Thursday and another record profit is

expected.

Analysts at BofA warned the AI capex boom was eroding cash

generation with hyperscalers having spent $234 billion this year

and forward free cash flow expected to turn negative for the

first time since at least 2007.

"Against that backdrop, many overlooked areas offer

materially better value," they said in a note.

The spike in oil pushed 2-year Treasury yields to

their highest since early 2025 at 4.2393%, while Fed fund

futures slipped 2 ticks, implying 39 basis points of

policy tightening by the end of the year.

That in turn kept the dollar index firm at 101.13.

The euro eased a fraction to $1.1394 as Europe is far

more reliant on foreign oil than the U.S.

The dollar added 0.2% on the yen to 161.97,

regaining some of the ground lost on Friday when Japanese

Finance Minister Satsuki Katayama floated an idea to encourage

the $1.8 trillion Government Pension Investment Fund (GPIF) and

other retirement vehicles to bring some of their money home.

"The GPIF currently allocates 50/50 between domestic and

offshore and a move back even to the pre-pandemic norm closer to

60/40 would come with a large JPY buying flow," said Taylor

Nugent, a senior economist at NAB.

"It is worth noting though that while allocations can

theoretically be reviewed any time, they tend to be slow moving,

and the FY26 investment plan is already in place."

The pound eased 0.2% to $1.3383 ahead of a pivotal

week in UK politics as Andy Burnham is expected to be formally

anointed as Labour leader on Friday and named as prime minister

on July 20.

In commodity markets, the rise in yields weighed on

non-interest bearing gold, which slipped 1.5% to about $4,060 an

ounce.