The latest escalation between Washington and Tehran pushed investors toward safer assets, while oil prices rebounded sharply amid fears of wider regional instability and disruptions around the Strait of Hormuz.

The MSCI index of emerging market Asian equities dropped more than 2 percent, marking its worst trading session in over a week. Singapore’s FTSE Straits Times Index fell around 0.7 percent, while markets in Thailand and the Philippines declined between 1 and 1.8 percent.

“Markets had moved too fast, pricing geopolitical optimism. Now investors are partially unwinding those trades while waiting for actual diplomatic progress instead of speculative headlines,” said Fakhrul Fulvian, chief economist at Trimegah Sekuritas Indonesia.

Asian currencies also came under pressure as the US dollar index climbed to a one-week high, driven by fading hopes for a quick resolution to the Iran conflict.

The decline in regional markets came despite Wall Street’s major indexes closing at record highs overnight, supported by earlier hopes of easing Middle East tensions and lower oil prices.

However, sentiment weakened in Asian trading after reports emerged that the United States had launched another round of military strikes on Iran on Wednesday — the second such operation this week.

The strikes followed comments by US President Donald Trump rejecting reports that Iran and Oman would jointly oversee shipping operations through the Strait of Hormuz under a proposed peace arrangement.

Oil prices rebounded more than 2 percent after the attacks, reversing part of Wednesday’s sharp decline. Brent crude traded near 97 dollars per barrel, while US West Texas Intermediate crude climbed above 90 dollars per barrel.

Japan’s Nikkei 225 index eased 0.1 percent to 64,921 points after touching a record high in the previous session. The broader TOPIX index also edged down 0.2 percent.

South Korea’s KOSPI fell 1.1 percent after reaching fresh record highs on Wednesday, as investors booked profits in semiconductor and AI-linked stocks following a strong rally in recent weeks.

Heavyweight chipmakers came under mild pressure as traders reduced risk exposure ahead of key US inflation data and amid renewed uncertainty surrounding the Middle East conflict.

Hong Kong’s Hang Seng Index declined nearly 2 percent, weighed down by losses in technology shares. China’s Shanghai Composite slipped 0.4 percent, while the blue-chip CSI 300 index lost 1.1 percent.

Elsewhere in the region, Australia’s S&P/ASX 200 fell 1.1 percent, while futures linked to India’s Nifty 50 index edged down 0.3 percent.

Investors are now closely watching the US Personal Consumption Expenditures, or PCE, price index due later on Thursday. The data is considered the Federal Reserve’s preferred measure of inflation and could play a major role in shaping expectations for future interest rate decisions.

Market participants fear that persistently high oil and energy prices linked to the Iran conflict may complicate the Federal Reserve’s policy outlook and increase the possibility of another interest rate hike later this year.