Overnight, stocks on Wall Street sold off and oil futures surged more than 9 per cent as the conflict between the U.S. and Iran re-ignited, once again throttling the flow of goods through the Strait of Hormuz. 

The S&P 500 closed 0.8 per cent lower and the Nasdaq Composite fell 1.6 per cent.

Fed funds futures are pricing in an implied 43.3 per cent probability of a 25 basis point hike at the US central bank’s next two-day meeting on Jul 28 to Jul 29, compared to a 34.2 per cent chance on Friday, according to the CME Group’s FedWatch tool. 

The yield on the US 10-year Treasury bond was up 1.6 basis points at 4.624 per cent. 

The US dollar index, which measures the greenback’s strength against a basket of six currencies, nudged 0.1 per cent lower to 101.18, trading around its highest levels of the month. Gold was up 0.3 per cent at US$4,012.37.

“The risk to Asian markets from the re-escalation in US-Iran tensions runs mainly through the impact of higher energy prices on currencies and policy interest rates,” said Eastspring Investments’ chief investment officer Vis Nayar in a note. 

“Persistently higher oil prices would increase the risk that the UW Federal Reserve would hike the Fed funds rate later this year.”

In Taipei, the Taiwanese benchmark fell to a one-month low, leading regional declines. 

In Seoul, stocks moved between negative and positive territory as shares in SK Hynix veered between gains and losses, falling as much as 5.6 per cent after an earlier rally. 

The volatility for the memory chipmaker comes after a dramatic plunge a day earlier following its Nasdaq debut last week.

In cryptocurrencies, bitcoin was 0.4 per cent higher at US$62,415.22 while ether was up 0.7 per cent at US$1,778.30.