* European equities and US stock futures in positive

territory

* Iran conflict back in focus but oil prices drop amid

signals of lower demand

* US dollar reverses earlier rise, euro up

* Traders price in a 65% chance of Fed staying on hold next

month

(Adds comments on US fiscal deficit, updates prices)

By Stefano Rebaudo

Aug 13 (Reuters) - Stocks rose and oil prices dropped on

Thursday,even as investors shifted their attention back to the

Iran war after softer-than-expected U.S. data reinforced

expectations that the Federal Reserve will keep rates unchanged

next month.

Oil prices slipped 2% to $87.30, as signals of lower demand

outweighed the ongoing stalemate in peace negotiations over

Iran. Commercial crude oil inventories posted their largest

weekly gain since January 2023, and the Organization of the

Petroleum Exporting Countries lowered its world oil demand

growth forecast for 2026.

Traders scaled back their bets on a September rate hike,

pricing in a 65% probability of the Fed staying on hold next

month versus 50% on Wednesday before the release of the latest

economic data and inflation figures.

A raft of upbeat earnings from AI infrastructure firms

boosted technology stocks on Wall Street and Asian equities

overnight with the U.S. broader semiconductor index

advancing about 2.5%, the biggest daily rise in almost a week,

and the Nasdaq outperforming peers.

MSCI's main world stocks index rose 0.20%.

Europe's STOXX 600 was up 0.26%, with tech stocks

rising 0.36%.

Nasdaq futures edged 0.08% and S&P 500 futures

increased 0.13%. The S&P index hit an all-time

high last week.

"Earnings season (for AI infrastructure names) has been

strong and shows no signs of slowdown in Capex," Mohit Kumar, an

economist at Jefferies, said, before stating the bank remained

with an overweight position in the AI sector.

"The background of high amounts of cash in the system and

Fed not hiking (Jefferies view) should continue to support risky

assets," he added.

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

rose 1.08%, led by South Korean shares

jumping 3.78%. Japan's Nikkei gained 1.67% on

chip-related stocks and a robust earnings outlook.

Attention now shifts to the producer prices data, due later

in the day, for confirmation that inflation pressures ​are

moderating.

Washington and Tehran traded accusations on Thursday over a

deal to reopen the strategically vital Strait of Hormuz, with

the United States saying Iran had failed to meet its obligations

and Iran countering that Washington had not delivered on ending

a blockade of Iranian ports.

CONCERNS ABOUT U.S. DEFICIT

The U.S. dollar edged higher to its strongest level in

nearly two weeks on concerns about the stalemate in Iran. High

energy prices are expected to weigh more heavily on the

economies of the euro zone and Japan, both large energy

importers, while the United States is seen as relatively

insulated from oil shocks.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

was down 0.08% at 99.90 after hitting 100.08, its highest level

since July 31.

The euro, which by contrast benefits from lower oil prices,

was up 0.12% at $1.1537.

U.S. Treasury yields eased slightly, with analysts saying

the U.S. federal budget deficit's rise to $432 billion is likely

to add upward pressure on long-term borrowing costs.

"I would still be careful chasing rallies (in U.S.

Treasuries), especially in the back end, where supply, fiscal

concerns and oil-related term premium remain hard to dismiss,"

Mizuhostrategist Evelyne Gomez-Liechti said, recalling that PPI

data is the next test, alongside jobless claims and the 30-year

U.S. Treasury auction.

U.S. 30-year Treasury yields were not far from

their highest level in almost 30 years, down 1 basis point at

5.24%. They hit 5.2811% on July 31, their highest since summer

2007.

Against the yen, the dollar softened 0.08% to 159.33.

Expectations that the Bank of Japan would hike interest rates

next month, earlier than previously expected, were reinforced by

Japan's producer price index, which rose 7.2% in July from a

year earlier.