(Updates with early European market moves)

* Oil surges on widening Middle East tensions

* US tech firms' spending plans lift Asian chipmakers

* ECB expected to hold rates, talk hawkish

* Yen languishing at 40-year lows

By Marc Jones

LONDON, July 23 (Reuters) - A spike in oil prices drove

Europe's government borrowing costs to long-term highs on

Thursday as reignited inflation worries left traders bracing for

a hawkish meeting at the European Central Bank later in the day.

Share markets were also on the back foot early on, as

disappointing earnings from heavyweight chipmaker

STMicroelectronics sent its shares tumbling 15% and

Google-parent Alphabet's plan to ramp up its AI spending by

another $15 billion this year continued to sink in.

The main focus though remained on the renewed surge in oil

prices - and global borrowing costs - following the

re-escalation of the conflict in the Middle East between the

United States and Iran.

The Iran-aligned Houthis said on Thursday they had struck two

Saudi oil tankers as part of a naval blockade on Saudi Arabia,

threatening to create a second chokepoint on global oil supplies

alongside Iran's near-closure of the Strait of Hormuz.

Meanwhile, the U.S. military carried out a new round of strikes

on Iran at President Donald Trump's direction, marking a 12th

successive night of American attacks and prompting further

Iranian retaliation.

Brent jumped 4% to nearly $98 a barrel, putting the

psychological $100 threshold well within reach and driving

Germany's 10-year bund yield - the benchmark for euro zone

borrowing costs - above 3.2% for the first time since the woes

of the bloc's debt crisis in 2011.

It also sharpened focus on the day's ECB meeting. Markets see

just a one-in-five chance of another interest rate hike at this

meeting. They do, however, see a four-in-five chance of a hike

in September.

"One could argue for a front-loaded hike today, but over

previous years the ECB has always fully telegraphed any policy

moves in advance," said Michiel Tukker, senior rates strategist

at ING.

In contrast to Europe's struggles, Asian main markets rose

as investors bet the likes of South Korea's

KOSPI, which has surged this year despite some recent

volatility, will continue to benefit from the AI boom.

Earnings from Alphabet and Tesla on Wall

Street on Wednesday had shown no sign of a slowdown in the vast

spending on AI infrastructure, with the search giantsharply

raising its capital expenditure plans for the year.

The KOSPI surged more than 4% overnight in Seoul, led by 4.8%

and 3.7% respective gains for SK Hynix ( SKHY ) and Samsung

Electronics ( SSNLF ). Tokyo's Nikkei and Hong Kong's

Hang Seng ticked higher too.

"U.S. megacaps may face more scrutiny because they are writing

the cheques, while chipmakers, memory suppliers and

infrastructure companies get paid earlier in the investment

cycle," said Charu Chanana, chief investment strategist at Saxo

in Singapore.

YEN SLIPS BACK TO 40-YEAR LOW

In currency markets, the euro rose towards a one-week

high at $1.1429 as traders positioned for the ECB meeting and

the potential for hints of a September rate hike.

The Japanese yen was back at a 40-year low versus the

dollar though as a brief lift, prompted by a Bloomberg report

that Bank of Japan officials were open to raising rates at a

faster pace, faded.

Japan's BOJ-sensitive 2-year government bond yield had hit a

31-year high in Tokyo on those faster rate hike bets, while

Japan's finance minister issued his latest verbal warnings about

possible intervention, saying the government was ready to take

decisive forex action as needed.

"The consensus view blames a timid BOJ (for the recent yen

fall), but I think the problem is that higher oil prices have

dashed hopes of 1.5% GDP growth this year," said Societe

Generale FX strategist Kit Juckes.

(Additional reporting by Ankur Banerjee in Singapore; Editing by

Joe Bavier)