July 26 (Reuters) - - A look at the day ahead in Asian

markets by Alden Bentley in New York.

U.S. stock markets tried to steady from their epic one-day

shakeout before giving it up late in the day, amid jitters about

AI earnings potential that deflated megacaps, and, thus, the

whole market on Wednesday.

The S&P 500 and Nasdaq rallied during the session, but

closed down 0.5% and 0.9% respectively. The Dow Jones

Industrial Average hung on to close 0.2% higher and small-cap

stocks also rose as investors sought out value away from the

megacaps.

Tesla was the only one of the so-called Magnificent

7 stocks to climb out of its hole, ending 1.7% higher after

losing more than 12% Wednesday. Alphabet, Apple ( AAPL )

, Amazon ( AMZN ), Meta and Microsoft ( MSFT )

all fell, with earnings reports looming next week, as did AI

leader Nvidia, which reports later in August.

Some relief came from GDP data showing the U.S. economy grew

surprisingly fast in the second quarter, with less inflation,

giving the Fed scope to ease this year with little fear of

overheating.

Still, investors want to see what Friday's June Personal

Consumption Expenditure Price Index shows as the Fed's favorite

inflation reading, days before the Federal Open Market Committee

meeting next week. There seems little chance of a U.S. cut this

month, but markets are confident that a pivot away from

restrictive monetary policy will come in September.

The question: Is the selloff a bull market pullback or a

bearish turning point? Given the recent string of record highs,

indexes looked priced for perfection, which was not realized in

the results from Alphabet and Tesla that precipitated the

steepest percentage drop in the S&P 500 and Nasdaq since late

2022.

Uncertainty is a prominent theme ahead of the U.S. elections

after President Joe Biden scrubbed his campaign and handed the

baton to Vice President Kamala Harris, who has almost pulled

even in early polls with Republican Donald Trump.

Volatility has picked up across markets, according to the

CBOE Market Volatility Index, the bond market's ICE BofA

Merrill Lynch MOVE Index and currency market's

Deutschebank dollar currency vol index.

It doesn't help that the Bank of Japan and the Fed hold

meetings almost simultaneously next week. China's economy is

slowing faster than economists and Beijing anticipated, with

spillover into commodity markets and across Asia.

The Japanese yen rallied for a fourth straight session

against the dollar on Thursday, hitting a 2-1/2-month high, as

investors unwound their long-running bets against the currency

ahead of those meetings. Dollar/yen was at 153.845 in late

trade, just about flat.

Chinese stocks fell , iron ore and oil prices were shaky

after the country's central bank sprang a surprise cut in

longer-term interest rates, only stoking further worries about

the world's second-largest economy and Asian markets overall.

The Shanghai Composite index closed at the lowest

level since Feb. 19. MSCI's broadest index of Asia-Pacific

shares outside Japan closed 1.00% lower, while

Japan's Nikkei is coming off a 3.28% tumble.

"In China it's not really a function of the cost of

capital, it's a function of demand (for) capital which is

causing economic weakness over there, which is why you had a

really tepid response from Chinese equities," said Jeff Schulze,

Head of economic and market strategy ClearBridge Investments.

Here are key developments that could provide more direction

to markets on Tuesday:

- Japan Tokyo CPI (July)

- Singapore Manufacturing output (June)

- U.S. Personal Consumption Expenditures Price Index (June)