* Chipmakers continue to drag stock indexes lower

* Markets in S.Korea closed for a holiday

* Nasdaq futures down 0.7%, S&P 500 futures slip 0.4%

* Oil prices up more than 11% for the week

* Japanese authorities back to jawboning as yen struggles

By Rae Wee

SINGAPORE, July 17 (Reuters) - Asian stocks got off to a

rocky start on Friday as the drag from chipmakers weighed on

global equity indexes, while oil prices were set for their

sharpest weekly rise in three months as tensions in the Middle

East erupted anew.

Investors this week 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

was down 0.06% in early Asia trade while the

Nikkei slid 2.8%.

Nasdaq futures lost 0.7% and S&P 500 futures

declined 0.4%. EUROSTOXX 50 futures were down 0.5%.

Markets in South Korea were closed for a holiday, after the

government on Thursday announced it 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.

"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 0.7% to $84.83 a barrel, while U.S. crude

advanced 0.7% to $79.49 per barrel.

The U.S. began conducting a new wave of strikes against Iran

on Thursday to "further degrade Iranian military capabilities",

the U.S. Central Command said in a statement.

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 little changed at $1.1442 while sterling

fetched $1.3472.

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

last stood at 162.38 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 0.4% at $3,985.64 an

ounce.