Updates at 0413 GMT

By Ankur Banerjee

SINGAPORE, July 31 (Reuters) -Asian stocks rose on Wednesday and the yen was volatile after the Bank of Japan raised interest rates, while investors assessed contrasting results from tech bellwether Microsoft and chipmaker AMD that suggested a divide in the AI landscape.

Oil prices rose from seven-week lows on escalating tension in the Middle East after the Palestinian militant group Hamas said its leader Ismail Haniyeh was killed in Iran's capital of Tehran. O/R

The BOJ also laid out a detailed plan for quantitative tightening to pare monthly bond buying in stages, to about 3 trillion yen ($19.6 billion) by January-March 2026, as it raised its overnight call rate target to 0.25% from zero to 0.1%.

Japan's benchmark Nikkei .N225 was down 0.19% in choppy trading, while the yields on Japanese government bonds inched lower after the decision.

The yen JPY=EBS was volatile, swinging between gains and losses. It was last flat at 152.81 a dollar, but still on course for a gain of more than 5% in July. FRX/

The yen started the month rooted near 38-year lows of 161.96, weighed down by the wide gap between interest rates in Japan and other developed nations.

But factors such as likely official intervention, a sell-off in equities and a reassessment of popular carry trades helped the currrency rebound to a 12-week high last week.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was 0.9% higher, with Chinese shares soaring on Wednesday. Blue-chip stocks .CSI300 were up about 2%, while Hong Kong's Hang Seng .HSI was also 2% higher.

Data showed China's manufacturing activity shrank for a third month in July, keeping alive expectations that Beijing will need to launch more stimulus as a protracted property crisis and job insecurity hold back growth.

Central banks dominate investor attention on Wednesday, with a Federal Reserve decision due later in the day, with markets expecting the U.S. central bank to stand pat on rates but indicate rate cuts are on the way.

Investors are jittery about the AI frenzy and tech valuations as results from tech bellwethers reinforced the idea that the payoff in hefty AI investments may take longer than first thought.

Disappointing earnings from Microsoft MSFT.O sent its shares lower, along with those of other tech firms, while strong earnings from Advanced Micro Devices AMD.O spurred a rally in chip stocks. Nasdaq futures NQc1 rebounded, and were last up 0.7%.

FED AWAITED

While the Fed is widely expected to hold interest rates, the spotlight is squarely on whether it opens the door to a September cut.

Markets are fully pricing in a cut of 25 basis points in September, with roughly 68 bps of easing priced in for the year.

The dollar index =USD, which measures the U.S. currency against six rivals, was at 104.41 and is down 1.36% for July.

However, some analysts expect the Fed to stay cautious as the labour market is still tight.

The Australian dollar AUD=D3 sank to a three-month low, while stocks .AXJO soared more than 1% as a soft inflation report squashed lingering speculation that interest rates would have to rise again. AUD/

In commodities, U.S. crude CLc1 was 1.65% higher at $75.98 per barrel and Brent LCOc1 was at $79.8 per barrel, up 1.49% on the day. O/R

Reporting by Ankur Banerjee; Editing by Sam Holmes and Clarence Fernandez

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