Asian shares shrug off US retreat after initial signing of US-Iran deal on ending the war

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BANGKOK (AP) — Shares surged Thursday in Asia, with benchmarks in Japan and South Korea setting fresh records, after the U.S. and Iran signed their initial agreement ending the war.

The rally in Asia followed a retreat Wednesday on Wall Street driven by speculation the Federal Reserve may raise interest rates this year to curb inflation.

U.S. futures were higher early Thursday, while oil prices fell.

Leaders from the U.S. and Iran signed the deal on a permanent end to hostilities. It starts a 60-day negotiating clock to reach a final deal on the future of Iran’s nuclear program, in the meantime it calls for Tehran to dilute its stockpile of highly enriched uranium.

The deal waives U.S.-backed sanctions on the country, immediately allowing Iran to sell its oil freely in a major concession from Washington, according to details released by both countries.

The news came after U.S. markets closed. In Tokyo, the Nikkei 225 kept on surging, gaining 1.9% to 71,233.35. It topped 70,000 for the first time this week and is still gaining thanks to hopes for an end to the war and buying of high-tech shares due to the artificial intelligence boom.

"This is very broad-based rally, I believe it’s actually showing some confidence that the Japanese economy is going to recover further from the ... the end of the war, and presumably the oil prices in the near future,” said Neil Newman, head of strategy at Astris Advisory Japan.

South Korea likewise has been setting records, gaining 0.6% to 8,917.31. Taiwan's Taiex jumped 1%.

In Hong Kong, the Hang Seng lost 1.4% to 23,968.66, while the Shanghai Composite index edged 0.1% higher.

Australia's S&P/ASX 200 slipped 0.4% to 8,930.50.

On Wednesday, the S&P 500 slumped 1.2% to 7,420.10 after the Fed released projections showing nearly half its policymakers foresee at least one increase to its main interest rate in 2026.

The Dow Jones Industrial Average dropped 1% to 51,492.55, and the Nasdaq composite sank 1.3% to 26,021.66.

Higher interest rates can tap the brakes on inflation, but they also slow the economy and hurt prices for investments. For much of the past year, the expectation has been that the Fed would be cutting rates.

In his first news conference as head of the U.S. central bank, Kevin Warsh, did not give a forecast for where the federal funds rate may end 2026. He said he’s considering a revamp of how the Fed communicates with financial markets and U.S. households and businesses.

One of his first moves was to end the inclusion of hints in Fed statements about where interest rates may be heading in the future.

Wall Street reacted uneasily to Fed officials’ latest set of projections. Stocks zigzagged up and down several times following the Fed's announcement that it will keep the federal funds rate steady for now.

In the stock market, SpaceX erased an early gain and fell 4.9% for its first loss since its ballyhooed debut on the U.S. stock market last week.

Drops of 3.8% for Microsoft, 3.5% for Amazon and 1.3% for Nvidia were three of the heaviest weights on the S&P 500.

A report released Wednesday said revenue at retailers across the country grew at a faster pace in May than economists expected, offering hope that solid spending by consumers can support the economy. But high inflation has also made U.S. shoppers feel more discouraged about their finances.

Oil prices were steadier Wednesday following slides earlier in the week on optimism about the tentative U.S.-Iran deal to get the global flow of oil going again. Iran is set to take steps to reopen the Strait of Hormuz now that the deal is signed. That would allow oil tankers to deliver crude from the Persian Gulf again and hopefully take pressure off inflation.

Early Thursday, the price for a barrel of Brent crude oil fell 1.6% to $78.31. It’s still above its roughly $70 price from before the war, but it’s well below its $100-plus price from a few weeks ago.

U.S. benchmark crude slipped 1.7% to $74.75 per barrel.

The U.S. dollar rose to 160.62 Japanese yen from 159.75 yen. The euro was trading at $1.1515, up from $1.1503.

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Senior Producer Mayuko Ono and AP Business Writers Matt Ott and Stan Choe contributed to this report.