Il Nuovo Postiglione - Stocks drop ahead of key US inflation data

Technology shares led declines across Asia as investors weighed lofty valuations and concerns that persistent inflation could prompt the US Federal Reserve to hike interest rates.

European equities followed Asia lower, with London, Paris and Frankfurt all dropping.

Oil prices were little changed, reacting mildly to US and Iranian forces exchanging fire, just hours after President Donald Trump said a deal to reopen the Strait of Hormuz was close.

"The oil market is trading on hope that a resolution can be found, and on a loosening of oil supply," said Kathleen Brooks, research director at trading group XTB.

She noted that declining onshore Middle Eastern oil inventories suggest "a significant amount" of oil is leaving the Gulf, although exports remain well below pre-war levels as the Strait of Hormuz remains largely blocked.

"This supply boost explains why the oil price is not surging on the latest outbreak of fighting in the Gulf," she said.

Attention later in the day will turn to the release of the highly anticipated US consumer price index, which analysts expect to show inflation running at its highest level in more than three years.

That follows forecast-topping US jobs figures Friday that ramped up expectations for a rate hike.

"Market nerves look fragile and volatility is rising ahead of today's next big data test: the US CPI update," said Ipek Ozkardeskaya, senior analyst at Swissquote.

"Rising inflationary pressures have totally shattered expectations of a Fed rate cut this year," she said, adding that traders are betting on a hike as soon as October.

The prospect of higher borrowing costs has dented optimism surrounding technology stocks as it threatens consumer demand and the debt-funded investment that the sector relies on.

Across Asia, AI-related shares were among the hardest hit.

South Korea's Samsung and SK hynix plunged six percent and seven percent respectively, while in Japan's tech investment titan SoftBank lost more than eight percent.

On broader markets, Seoul -- the poster child of the region's surge this year -- was down 4.5 percent.

Tokyo lost almost two percent, while Hong Kong and Shanghai also slipped.

Fears over a resurgence of the Middle East crisis added to trader anxieties after US forces struck sites in Iran in response to the downing of an American helicopter, sparking a retaliatory attack on US bases in Bahrain and Jordan.

Iran warned its Gulf neighbours that they had a "responsibility" to stop the United States and Israel from using their territory to strike the Islamic republic.

The attacks cast doubt on Trump's claim that negotiations on an enduring settlement to end the Middle East war were in their "final throes".

- Key figures at around 1100 GMT -

London - FTSE 100: DOWN 0.8 percent at 10,147.82 points

Paris - CAC 40: DOWN 0.9 percent at 8,132.94

Frankfurt - DAX: DOWN 1.3 percent at 24,105.52

Tokyo - Nikkei 225: DOWN 1.9 percent at 64,179.27 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 24,407.96 (close)

Shanghai - Composite: DOWN 0.4 percent at 3,993.23 (close)

New York - DOW: UP 0.2 percent at 50,872.11 (close)

Euro/dollar: UP at $1.1547 from $1.1542 on Tuesday

Pound/dollar: UP at $1.3386 from $1.3382

Dollar/yen: UP at 160.49 yen from 160.39 yen

Euro/pound: UP at 86.27 pence from 86.25 pence

West Texas Intermediate: UP 1.4 percent at $89.47 a barrel

Brent North Sea Crude: UP 1.3 percent at $92.56 a barrel

D.Campanella--INP