London (AFP) - A rout in tech stocks on fresh concerns over the AI boom rattled equity markets on Tuesday.

The sell-off overshadowed a further drop in oil prices after US President Donald Trump signalled optimism about a deal to end Middle East hostilities.

“The AI powered rollercoaster has taken another lurch downwards, with chip stocks falling sharply, as investors reassess rising competition and future demand,” said Susannah Streeter, chief investment strategist at Wealth Club.

South Korea’s Kospi stocks index plunged almost 11 percent after a report of a breakthrough in China’s chip industry compounded worries about the longevity of the AI boom.

“Just as geopolitical tensions appear to be easing slightly, there’s been a refocus on the runners and riders of the tech revolution, with a new kid on the chip block causing mayhem,” Streeter added.

Chipmakers led losses after The Information tech news outlet reported that China’s Shanghai Yuliangsheng had started mass production of a chipmaking technology long dominated by Dutch firm ASML.

The losses extended a sell-off in tech stocks following an eye-watering rally over the past two years that sent several indexes and companies to record highs.

Seoul-listed SK hynix sank 14.7 percent and Samsung more than 13 percent. Both firms have shed nearly 50 percent of their market value since hitting all-time highs last month.

Tokyo’s Nikkei tanked four percent as Kioxia, Advantest and Tokyo Electron shares tumbled.

Taipei fell more than four percent as market heavyweight TSMC took a hit.

Investors are now awaiting earnings this week from SK hynix, Samsung and Kioxia, as well as US titans Microsoft, Meta, Apple and Amazon.

Wall Street was mostly higher, though the tech-heavy Nasdaq Composite still in the red despite having cut losses as oil prices fell further.

“Early selling pressure will be concentrated on the semiconductor stocks and technology sector, yet the rotational trade is alive and well,” said Briefing.com analyst Patrick O’Hare.

The Philadelphia Semiconductor Sector index – which tracks the top 30 companies in the industry with stocks traded in the US, fell around 4.5 percent.

O’Hare pointed out that the broader market was doing better this year than the tech sector.

“There is some nervous tension in the market, however, as to whether this dynamic can persist or if there will be a ‘catch-down trade,’ where the struggles of the tech leaders become too much for the broader market to escape,” he said.

O’Hare said the direction and pace of interest rate changes could be the deciding factor.

While the market expects the US Federal Reserve to hold interest rates at its two-day meeting that ends Wednesday, nearly a third still see it hiking rates.

The market is increasingly pricing in two rate hikes by the Fed this year.

The dollar moved lower against its main rival currencies ahead of the rate decision.

European stocks ended the day higher, supported by corporate earnings and lower oil prices.

Markets also responded to renewed optimism over the US-Iran crisis, with both sides pausing tit-for-tat strikes sparked by a breakdown in diplomacy over the Strait of Hormuz.

Trump expressed new hope that diplomacy could end the war that began February 28.

Reports said Oman and Iran were trying to reach an agreement to restart shipping through Hormuz, a route which normally carries around a fifth of global oil and LNG.

Hopes for a deal sent both main oil contracts sharply lower.

- Key figures around 1530 GMT -

Brent North Sea Crude: DOWN 4.3 percent at $82.21 per barrel

West Texas Intermediate: DOWN 3.8 percent at $79.46 per barrel

New York - DOW: UP 1.1 percent at 52,778.67 points

New York - S&P 500: UP 0.3 percent at 7,434.71

New York - Nasdaq Composite: DOWN 0.1 at 24,900.15

London - FTSE 100: UP 1.1 percent at 10,871.02 (close)

Paris - CAC 40: UP 0.6 percent at 8,458.78 (close)

Frankfurt - DAX: 0.4 percent at 25,464.01 (close)

Seoul - Kospi: DOWN 10.8 percent at 6,023.66 (close)

Tokyo - Nikkei 225: DOWN 4.0 percent at 62,364.92 (close)

Hong Kong - Hang Seng Index: UP 0.4 percent at 25,310.85 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,813.31 (close)

Euro/dollar: UP at $1.1398 from $1.1371 on Monday

Pound/dollar: UP at $1.3304 from $1.3293

Euro/pound: UP at 85.67 pence from 85.54 pence

Dollar/yen: DOWN at 163.70 yen from 163.72 yen