GLOBAL MARKETS: Stocks steady as US-Iran peace talks stall, AI rally cools

LONDON - Shares wobbled on Friday as investors turned defensive ahead of the weekend, wary of the flare-up in Middle East hostilities with U.S.-Iran peace talks in limbo.

The Iran-backed Hezbollah militia rejected a new ceasefire in Lebanon on Thursday and Israel said it would not withdraw troops from the country, undermining U.S. President Donald Trump's efforts to halt fighting there and reach a peace deal with Tehran.

Meanwhile, an AI-driven selloff after chipmaker Broadcom AVGO.O reported underwhelming results on Wednesday continued into a second day, as investors took profits following a blistering rally.

The pan-European STOXX 600 index .STOXX edged up 0.2%, erasing earlier losses and outperforming a 2% slide in MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS as South Korea's tech-heavy Kospi .KS11 plunged 7%.

"(It) seems like quite a risk-off today," said Charu Chanana, chief investment strategist at Saxo.

"Korea has been one of the biggest beneficiaries of the AI memory supercycle, so when Broadcom disappointed on AI expectations, investors quickly de-risked the whole semiconductor chain," she said.

"The issue is not that AI demand has disappeared - it is that expectations had become extremely high, and even good numbers are no longer enough unless guidance keeps moving higher."

Nasdaq futures NQc1 fell 1% and S&P 500 futures ESc1 eased 0.4%, after a mixed session on Wall Street overnight.

Cryptocurrencies extended recent declines, with bitcoin BTC= shedding 2% to $62,307 and heading for a weekly decline of 15%, its biggest since the week FTX collapsed in November 2022, while ether ETH= was down 5.7% at $1,671.

OIL SET FOR WEEKLY GAIN

Oil prices eased slightly after Oman said operations at Mina al Fahal port were proceeding normally following an earlier Reuters report that oil loadings had been suspended after an explosion.

Brent crude futures LCOc1 fell 50 cents to $94.53 a barrel and U.S. crude CLc1 edged down 0.5% to $92.61 per barrel, with both contracts set to post their first weekly gain in three weeks.

Kristian Kerr, head of macro strategy at LPL Financial, said markets were underestimating the complexities involved in restoring shipping through the Strait of Hormuz to pre-war levels, even if Washington and Tehran reach a memorandum of understanding.

"Any early increase in barrels is likely to come from already produced crude, including crude sitting on stranded or floating vessels and Iranian cargoes in storage, rather than a sustained restart in production or exports," he said.

"In other words, this is more about clearing existing bottlenecks than reflating the supply base."

EYES ON US NONFARM PAYROLLS

In currencies, the dollar was on track for a 0.5% weekly rise =USD supported by the Middle East conflict.

The yen JPY= languished near the 160 per dollar level and was last 0.1% stronger at 159.95, as Japanese officials ramped up warnings on the ailing currency, keeping traders on alert for further intervention from Tokyo.

Data on Friday showed Japan's foreign reserves fell by $77 billion in May.

Focus now turns to the closely watched U.S. nonfarm payrolls data due later in the day.

Market forecasts are for a solid rise of 85,000 in employment, keeping the jobless rate steady at 4.3%. Anything stronger would likely see the odds of a Federal Reserve rate hike narrow further.

-Reporting by Lawrence White and Rae Wee; Editing by Kate Mayberry, Kirsten Donovan/Reuters