Asian Shares Slide as Oil Surges and Rate Hikes Loom

SYDNEY, Sept 14 (Reuters) - Share markets slid across Asia on Monday as supply concerns sent oil prices spiking once more, with investors steeling themselves for possible interest-rate hikes in both the United States and Japan this week.

Brent climbed 3% as fresh strikes on Saudi Arabia and on vessels in the Gulf frayed nerves, following an attack on a Saudi oil pipeline and advances by Yemen's Houthis that threatened to deepen the wartime disruption to global energy supplies.

A meeting in Oman between Iran and Gulf Arab states, set for Monday to discuss an agreement on opening the Strait of Hormuz, was postponed.

With shipping through the strait and the Bab el-Mandeb at risk, analysts worry oil prices could remain elevated for a prolonged stretch, fueling inflation worldwide.

An uncomfortably hot U.S. consumer price report on Friday drove markets to price in an 86% chance that the Federal Reserve raises rates by 25 basis points on Wednesday and moves again by December. That would be the first hike since mid-2023.

"We now expect the Fed to hike twice this year, in September and December," said Michael Feroli, chief U.S. economist at JPMorgan. "At this stage, failing to back up words with action could put the credibility of the institution at risk."

"Whether these actions represent a limited recalibration or mark the start of a more sustained hiking cycle will depend on incoming data," he added. "We anticipate the former scenario but see risks for the latter."

Brent futures were last up 3.1% at $107.84 a barrel, after gaining almost 9% last week, while U.S. crude rose 2.8% to $102.85 a barrel.

Nikkei futures were down 2% at 63,260, against a cash close of 64,011. On Wall Street, S&P 500 futures lost 0.5% and Nasdaq futures fell 1.0%.

HIGH YIELDS PUT EQUITY VALUATIONS TO THE TEST

Treasury futures were a shade firmer in early trading after being sold heavily in recent weeks. In the past week alone, 2-year yields climbed a steep 26 basis points while 10-year yields added 19 basis points as the curve flattened.

Ben Snider, chief U.S. equity strategist at Goldman Sachs, said strong corporate earnings should lend support to Wall Street if borrowing costs rise.

"Equities typically struggle when the Fed starts to hike rates, but we expect the bull market to continue," he added. "The S&P 500 has generated an average three-month return of -2% at the start of seven hiking cycles during the last few decades."

"Yet the S&P 500 has generated an average return of +9% during the 12 months following the first hike."

Markets also imply roughly a 76% chance the Bank of Japan lifts its cash rate by a quarter point, to 1.25%, when it meets on Friday. The BOJ is also expected to sound hawkish on further tightening as it battles to prevent a relapse in the yen after market intervention helped pull it from a 40-year low.

The dollar held at 153.77 yen, having fallen about 4% over the last two weeks and retreating from a July peak of 163.99. The euro was also little changed at $1.1600, after finding support at $1.1570 on Friday.

Sterling was flat at $1.3518, with the Bank of England expected to hold rates at 3.75% on Thursday, though the decision could again be split.

In commodity markets, gold slipped 0.3% to $4,336 an ounce as higher bond yields diminished the appeal of the non-interest-paying metal.