SINGAPORE/LONDON, June 29 (Reuters) - U.S. stock futures rallied on Monday after the U.S. and Iran agreed to halt recent hostilities and renew talks, helping oil prices fall after spiking earlier in the wake of renewed attacks between the two sides.
European equities flatlined but tech outperformed on both sides of the Atlantic after nerves about AI spending triggered a selloff last week.
Futures for the U.S. S&P 500 climbed 0.8%, while Europe's STOXX 600 index (.STOXX), was little changed.
Futures for the tech-heavy Nasdaq rose 1.1%, putting the U.S. index on track for a rebound after it slumped more than 4% last week.
The STOXX tech index (.SX8P), climbed 1.2%.
A return to diplomacy in the Middle East would follow several days of tit-for-tat strikes since an Iranian projectile hit a cargo vessel in the Strait of Hormuz last week, with both sides accusing each other of breaking an interim ceasefire.
Oil initially spiked on Monday after the U.S. and Iran traded strikes over the weekend, but then cooled to trade at around its lowest since the conflict began.
Brent crude was last up 0.7% at $72.50 a barrel, down 22% for the month.
"The market can take some relief in the lower oil prices and its impact on the global economy," Mohit Kumar, chief European economist at Jefferies, said.
"Lower oil prices should lead to a diversification trade and growth-sensitive sectors which have suffered in the last few months should outperform."
Asian markets pared earlier losses, with South Korea's KOSPI (.KS11), down 0.2% and Japan's Nikkei (.N225), up 0.2%.
Investors have been battling worries that valuations for AI-related firms have become stretched following dramatic gains, although markets were poised to claw back some ground on Monday.
The Bank for International Settlements cautioned over the durability of the current AI investment surge, noting supply bottlenecks and intense competition could spur the kind of overinvestment seen in previous boom-and-bust cycles.
RATE HIKE WAGERS
Oil prices have fallen sharply in recent weeks but measures of inflation have nonetheless jumped in the U.S. and elsewhere, putting pressure on the Federal Reserve to hike rates.
Rising odds of a rate hike have lifted the dollar. The dollar index , which measures the U.S. currency against peers, was last slightly lower at 101.25, just below the one-year high it touched last week.
The Japanese yen fell slightly to 161.80 per U.S. dollar as fears of another bout of intervention from Tokyo kept the fragile currency from breaking through its lowest in 40 years.
Investors are pricing in at least one Fed hike this year, a sharp reversal from expectations of two rate cuts before the conflict began.
BofA strategists anticipate three hikes, a more hawkish view that in part reflects strong U.S. jobs growth.
The rising dollar has weighed on gold, which was down 1.3% at $4,034 per ounce. The yellow metal is set for a 13% decline in the second quarter, its biggest quarterly drop since 2013.
Reporting by Ankur Banerjee in Singapore and Harry Robertson in London; Editing by Jacqueline Wong, Shri Navaratnam, Aidan Lewis and Andrew Heavens
