* Equities bounce back as investors gird for earnings test

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

* Inflation worries buoy yields, rate hike wagers

* US imposes new 50% tariffs on $20 billion worth of

Canadian products

(Updates with early European trading)

By Ankur Banerjee and Johann M Cherian

July 21 (Reuters) - Global stocks rose on Tuesday as oil

prices retreated from a one-month high on mediation efforts in

the Middle East, and investors braced for corporate earnings

that will test an AI trade that is under pressure.

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

blockade on Saudi Arabia, a move that could further disrupt

energy supplies, amid increased attacks between the U.S. and

Iran, even as efforts were being made to revive a fragile

ceasefire.

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.

Brent crude futures eased 0.6% to $88.72 per barrel

on Tuesday as investors latched on to hopes of a resolution.

Brent hit a one-month high of $91.42 a barrel in the previous

session.

"It seems to suggest that this isn't a total breakdown.

There are still channels for sort of talks to go on, which is

great news. Just quite how successful they will be is another

matter," said David Morrison, a senior market analyst at Trade

Nation.

In equities, Europe's STOXX 600 rose 0.2%, while

futures tracking the tech-heavy Nasdaq led gains on Wall

Street with a 1.4% rise, suggesting a bounce at the

opening bell later.

In Asia overnight, Japan's Nikkei finished up 3% and

South Korea's volatile KOSPI ended 4.5% higher.

Trade was also in the spotlight after President Donald Trump

slapped 50% tariffs on Canadian imports worth about $20 billion,

in response to what the administration called discriminatory

treatment of American-made items. USMCA trade negotiations are

in progress, from which the United States has pointedly excluded

Canada.

However, reaction in the Canadian dollar and

benchmark bonds was muted, while futures tracking

the Toronto stock index inched up 0.3% after the bourse

closed at a 12-day low on Monday.

"I suppose there's a feeling that it's going to be watered

down, and ultimately, it's certainly not going to happen to the

tune of 50%," Morrison said of Trump's tariff threat.

AI'S EARNINGS TEST

Investor focus this week will be on earnings from companies

including Alphabet and Intel ( INTC ) 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.

July has been a rough month for global tech stocks, as

investors fret about high valuations and whether the investment

in AI infrastructure will yield tangible results. Strong

earnings from Asian chip bellwethers Samsung Electronics ( SSNLF )

and TSMC in recent weeks were also not

enough to satisfy investors.

"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," Neumann said.

Escalating U.S.-Iran tensions have revived worries about

inflation and pushed Treasury yields higher. The 2-year note

yield, which typically moves in step with Federal

Reserve interest-rate expectations, was at 4.2%, down 2 basis

points on the day, following Monday's selloff, which pushed

yields up 4 bps.

Traders are pricing in at least one rate hike from the Fed

this year, and a roughly 20% possibility of a second, according

to money markets.

The dollar was a touch weaker on the day, but still hovered

near a one-week high against most major currencies. The euro

last bought $1.142, while the Japanese yen was at

162.67 per dollar, still within sight of 40-year lows, which is

keeping traders on alert for intervention from Tokyo.

Sterling was nursing losses after Prime Minister Andy

Burnham appointed John Healey as the UK's new finance minister.

It was last at $1.343, lower on the day and heading for a fourth

consecutive daily decline.

Burnham said he would stick to the previous government's

fiscal rules, though he would use any flexibility within them.

(Reporting by Ankur Banerjee in Singapore and Johann M Cherian

in Bengaluru; Editing by Jacqueline Wong, Kate Mayberry, Amanda

Cooper and Anil D'Silva)