Updates at 0515 GMT

By Stella Qiu

SYDNEY, Oct 15 (Reuters) -Asian stocks edged lower on Tuesday, contrasting with a strong Wall Street close and investor optimism about corporate earnings, while the dollar held near a two-month top, aided by bets on a smaller U.S. rate cut next month.

Oil prices fell about 3% after Israeli Prime Minister Benjamin Netanyahu reportedly told the United States that Israel is willing to strike Iranian military targets and not nuclear or oil ones, easing immediate concerns about supply disruptions. O/R

The Nikkei .N225 rallied more than 1% to a three-month peak, having been closed on Monday for a holiday. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.26% as gains in Taiwan and Australia were overshadowed by a drop in Chinese markets.

China's blue chips .CSI300 fell 1.08%, while Hong Kong's Hang Seng index .HSI slid nearly 2% as a lack of new stimulus details from Beijing left investors wanting for more.

Chinese media reported Beijing may raise an additional 6 trillion yuan ($850 billion) from Treasury bonds over three years to help bolster a sagging economy.

"China's signal on policy stimulus prompted us to go modestly overweight, especially given depressed valuations. Details have been scant, so we could change our view if future announcements disappoint," said analysts at BlackRock Investment Institute.

"We still like U.S. stocks and the broad AI theme as corporate earnings growth expands beyond tech. Yet fears over stretched valuations can drive brief selloffs. This calls for considering global exposure where we see cheap valuations and potential catalysts."

Overnight, the S&P 500 and Dow roared to record high closes, led by chip stocks after a 2.4% jump in AI darling Nvidia NVDA.O and a brisk start to the third-quarter earnings season with beats by JP Morgan JPM.N and Wells Fargo WFC.N.

Other big banks including Citi C.N, Bank of America BAC.N and Goldman Sachs GS.N will report quarterly results on Tuesday.

Stock futures edged higher on Tuesday, with S&P 500 futures ESc1 ticking up 0.06% while Nasdaq futures NQc1 rose 0.02%.

EUROSTOXX 50 futures STXEc1 added 0.28%. FTSE futures FFIc1 last traded 0.34% higher.

In the foreign exchange market, the dollar JPY=EBS slipped 0.12% to 149.60 yen, pulling back from a 2-1/2-month high of 149.98 overnight. The euro EUR=EBS eased 0.17% to $1.0890, languishing near the 10-week trough overnight, ahead of a rate decision from the European Central Bank on Thursday.

The dollar has been buoyed by conviction the Federal Reserve will choose a smaller 25 basis point rate cut next month, rather than a 50 bp move, given the economy continues to grow without overheating.

Fed Governor Christopher Waller on Monday called for "more caution" on interest-rate cuts ahead, while Fed Minneapolis President Neel Kashkari sees more modest rate cuts ahead.

Traders are pricing in about an 88% probability the Fed will cut rates by 25 basis points next month and a 12% chance it would leave rates unchanged, according to CME's FedWatch.

The U.S. bond market was shut for a holiday on Monday, but cash Treasuries fell slightly in early Asia trade. Two-year Treasury yields US2YT=RR are up 2 basis points to 3.9665%, while 10-year yields US10YT=RR steadied at 4.0944%.

Oil extended its declines for a third straight session on demand concerns and as the jitters about Israel's attack on Iran calmed. Brent futures LCOc1 fell 3.7% to $74.58 a barrel, having dropped 2% overnight.

Gold XAU= was 0.41% lower at $2,640.12 an ounce.

Reporting by Stella Qiu; Editing by Sam Holmes and Lincoln Feast.

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