Volkswacht Bodensee - Stocks drop on AI, rate hike worries as Lebanon deal hits oil

Fresh Iranian attacks and a lack of progress in peace talks with the United States added to the downbeat mood, though oil prices dived on news of a ceasefire between Israel and Lebanon.

Regional equity markets tracked a retreat on Wall Street, where tech firms -- the drivers of a global surge to record highs in recent years -- took a hit after Broadcom's estimated chip revenue for the third quarter came in below expectations.

The outlook revived concerns that the eye-watering sums that companies have invested in the AI sector may have been overdone and that valuations are overblown.

Investment giant Ray Dalio warned on Wednesday that the boom -- which has seen Nvidia's capitalisation top $5 trillion -- could turn into a bubble that will pop.

"All great technology changes produce bubbles," he said in an interview with Bloomberg Television.

"Nobody can get it exactly right. You have to either spend a ton of money to capture your market share and don't worry about whether it's too much or not, or you don't spend enough money and you lose your market share."

After Wall Street's retreat -- also fuelled by profit-taking -- stock markets in Asia fell, with tech-rich Tokyo and Seoul -- which have led gains this year -- among the hardest hit, shedding around two percent.

Hong Kong, Shanghai, Sydney, Singapore, Wellington and Taipei were also well down.

Jakarta tumbled more than one percent and is sitting at its lowest level since 2021 as the Indonesian rupiah plunged to a record low on worries about the country's economy.

Traders were also spooked by figures showing US companies last month added the most jobs since the start of last year, despite rising energy prices. That came days before a closely watched non-farm payrolls report Friday.

Speculation is rising that a strong reading -- which would compound the war-fuelled spike in inflation -- could put more pressure on the Fed to hike rates.

"For traders... strong growth is no longer the uncomplicated gift it once was," wrote Stephen Innes at SPI Asset Management.

"The market spent much of the past year trading as though rate cuts were perpetually just around the corner. Instead, the combination of resilient employment, firm activity data, and elevated energy prices is increasingly forcing investors to contemplate the opposite outcome.

"After months of head-scratching, traders finally appear to be accepting that a hawkish Federal Reserve, combined with an increasingly hawkish global central-bank backdrop, looks far more like a tightening cycle than a cutting cycle."

The Middle East crisis continued to weigh, with Iran's foreign minister saying "no tangible progress" had been made in negotiations with the United States to end the war.

Meanwhile, Iran targeted the US's main naval base in the region, located in Bahrain, and the Ali Al-Salem airbase in Kuwait, adding to worries about their fragile truce.

At least one person was killed in a separate strike on Kuwait's civilian airport that caused significant damage and forced a suspension of flights for a few hours.

However, President Donald Trump struck an upbeat tone, telling reporters at the White House: "I hear the negotiation itself is going very well actually.

"It could happen... over the weekend."

Still, Israel and Lebanon agreed Wednesday to implement a ceasefire "contingent on a complete cessation" of fire by Iran-backed militant group Hezbollah as well as evacuation of its operatives from southern Lebanon.

The announcement followed US-led talks in Washington and the two sides will meet for more talks later this month, "with a view toward reaching a comprehensive agreement".

Both main crude contracts, which have jumped back towards $100 this week, sank more than one percent.

- Key figures at around 0230 GMT -

West Texas Intermediate: DOWN 1.1 percent at $94.97 a barrel

Brent North Sea Crude: DOWN 1.2 percent at $96.60 a barrel

Tokyo - Nikkei 225: DOWN 1.9 percent at 67,101.83 (break)

Hong Kong - Hang Seng Index: DOWN 1.1 percent at 25,343.34

Shanghai - Composite: DOWN 0.5 percent at 4,065.59

Euro/dollar: UP at $1.1609 from $1.1599 on Wednesday

Pound/dollar: UP at $1.3424 from $1.3420

Dollar/yen: DOWN at 159.89 yen from 160.07 yen

Euro/pound: UP at 86.47 pence from 86.43 pence

New York - DOW: DOWN 1.2 percent at 50,687.07 (close)

London - FTSE 100: DOWN 0.4 percent at 10,332.30 (close)

W.Huber--VB