* Chipmakers continue to drag stock indexes lower

* Markets in S.Korea closed for a holiday

* Nasdaq futures down 1.5%, S&P 500 futures fall 0.9%

* Oil prices up more than 11% for the week

* Japanese authorities back to jawboning as yen struggles

(Updates to Asia afternoon)

By Rae Wee

SINGAPORE, July 17 (Reuters) - A rout in chipmakers dragged

stock indexes lower on Friday, with the risk aversion compounded

by renewed tensions in the Middle East, while oil prices were

set for their sharpest weekly rise in three months.

Investors rotated out of semiconductor plays into other

sectors such as banking after robust earnings from major

lenders, leaving Asia vulnerable to the selloff given its

heavier exposure to chips.

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

slid more than 2% while the Nikkei sank

nearly 6%.

Nasdaq futures lost 1.5% and S&P 500 futures

declined 0.9%. EUROSTOXX 50 futures were down 1.1%,

while DAX futures edged 0.85% lower.

Stocks in Taiwan were hit hard by the selloff, falling 5.7%

, while markets in South Korea were closed for a holiday.

South Korean authorities on Thursday announced they will

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.

In China, the CSI300 blue-chip index was down

2.45%, while Hong Kong's Hang Seng slid 2%, led by losses

in technology shares.

"Asia's AI trade thesis is being tested again. After a

strong rally so far this year - led by semiconductors - concerns

have resurfaced about potential overcapacity in the AI

build-up," said analysts at HSBC.

"A tougher question is how long the AI cycle can

realistically run. Are we already at the late stage of the

cycle? Has it peaked? It is an important question, and the

reality is that it is difficult to time the market. That said,

the fundamentals still look solid."

Oil prices were on the rise, with Brent crude futures

up 1% to $85.09 a barrel, while U.S. crude

advanced 1.2% to $79.90 per barrel.

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, as last month's truce

descended into daily attacks and counterattacks.

For the week, Brent and U.S. crude futures were set to rise

more than 11% each, marking their largest gains since April.

"The U.S. and Iran are further away from seeing eye-to-eye,"

said Thierry Wizman, global FX and rates strategist at

Macquarie.

"The next few days may determine which side has 'overplayed

its hand', but not without the risk of seeing some oil

infrastructure destroyed in the process."

Trade tensions also returned to the fore, after the U.S.

imposed new 25% tariffs on Brazil.

ASSESSING THE FED RATE PATH

In currencies, 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 down slightly at $1.1436 while sterling

fetched $1.3459.

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

last stood at 162.41 per dollar, prompting renewed jawboning

from Japanese Finance Minister Satsuki Katayama to try and

support the currency.

Much of the market's focus has also been on a potential

allocation shift by Japan's GPIF and other pension funds, after

Katayama said last week the government aims to steer the

country's vast state pension funds to "substantially" increase

investments in domestic assets.

"We think the expectations of repatriations by Japanese

investors could, for a certain period, provide support for

higher equity prices and lower (Japanese government bond)

yields," said Daiju Aoki, regional chief investment officer for

Japan and chief Japan economist at UBS Wealth Management.

"However, market movements that extend beyond what is

justified by economic growth and corporate earnings fundamentals

are unlikely to be sustained over the longer term."

Elsewhere, spot gold was up 0.3% at $3,981.44 an

ounce.