* KOSPI dives 8%, Nikkei drops 3.9% as AI rally stalls

* Oil and dollar rise on Middle East tensions

* Shifting Fed rate expectations send investors to the exit

(Updates for European morning trading)

By Samuel Indyk and Tom Westbrook

LONDON, June 8 (Reuters) - Global stocks declined on Monday

as fresh hostilities in the Middle East pushed up oil prices and

as investors rushed out of the hottest AI-linked shares on fears

that the bull run has gone too far, too fast.

The twin triggers for the tech rout were last week's

disappointing outlook at chipmaker Broadcom ( AVGO ) and a

surprisingly strong U.S. jobs report on Friday that has traders

pricing in a rate hike from the Federal Reserve this year.

Escalating conflict in the Middle East is also hurting sentiment

after Israel said it struck military targets in western and

central Iran, pushing Brent crude futures 5% higher.

"The market has gone a long way without a correction," said

Lars Skovgaard, senior investment strategist at Danske Bank.

"The big surprise is not that we had a selloff, but that we

didn't have it before."

Europe's STOXX 600 was down 0.8% on Monday. Major

bourses in Frankfurt, Paris and London

were down between 0.4% and 1%.

Europe's relative lack of a technology hardware sector and

greater exposure to energy prices have meant its major markets

have largely taken a back seat in the rally that has gripped

Wall Street, Tokyo and Seoul, but it also makes the region more

insulated than other markets to a sharp selloff in the tech

space.

In Asia, the decline in equity markets was starker. South

Korea's chip-heavy KOSPI, the world's best-performing

market this year, led losses with an 8.3% slide that has the

benchmark down over 16% from last week's record high.

Japan's Nikkei fell almost 4% with market darlings

across the computer-chip production supply chain falling

furthest, while Taiwan's benchmark sank 3.5%.

Nasdaq futures were attempting a recovery following a

sharp selloff on Friday when the index dropped 4.2%.

"The move looks more like a positioning and momentum unwind

than a reassessment of the long-term AI story," said Marc Velan,

head of investments at Lucerne Asset Management in Singapore.

"(South) Korean technology names have been among the

strongest performers globally and were heavily owned, so when

rate expectations shifted after the jobs report, they became a

natural source of liquidity."

In bonds, the 2-year Treasury yield rose more

than 11 basis points on Friday after the robust jobs report. It

was up 1.5 bps on Monday to 4.1784% as markets bet that the Fed

will hike rates this year. The benchmark 10-year yield

rose 3.5 bps on Monday to 4.57%.

"The yield rise was the one that cooked the market. That was

the last straw," Danske Bank's Skovgaard said.

"With volatility rising you've had some forced selling of

investors having to lower their exposure to equities."

INFLATION AND ECB AHEAD

The week ahead is headlined by the giant SpaceX listing,

expected to price on Thursday and trade on Friday, but inflation

will also be in focus with U.S. consumer price data due on

Wednesday and central bank meetings in Canada and Europe.

Last week, bitcoin notched its heaviest weekly drop since

the collapse of crypto exchange FTX in late 2022, falling about

16%. It was up slightly on Monday, hovering just above $63,000.

SpaceX's debut is expected to be followed by other major

IPOs in the coming months from Anthropic and OpenAI, raising so

much money that brokers are nervous it could draw down other

assets.

"The market regime has potentially shifted from moderate

inflation and rate cuts to potential 'overheating' contributing

to higher Treasury yields, a higher path of short-term interest

rates and tighter liquidity," said Nick Ferres, CIO of Vantage

Point Asset Management in Singapore.

In currency trading, the dollar was firm and holding above

160 yen, keeping investors on watch for intervention from

Japanese authorities. The euro hovered at $1.1518.

(Reporting by Samuel Indyk and Tom Westbrook; Editing by Shri

Navaratnam, Thomas Derpinghaus and Ros Russell)