Morning Bid: The fragile AI trade 

Oct 13 (Reuters) - A look at the day ahead in European and global markets from Ankur Banerjee

A steep rout in AI stocks on signs that China is swiftly closing the tech gap has cast a shadow over markets and brought to the fore the fragility of the AI trade as investors remain concerned about the durability and profitability of the sector.

South Korea's tech-heavy KOSPI bore the brunt of the investor angst, sinking over 7% to its lowest since late July. That came after US chipmakers slid 2.7% on reports of rapid tech progress by Chinese rival ChangXin Memory Technologies (CXMT) raising the prospect of Chinese firms closing the technology gap.

Nobody's doubting AI demand. The worry is who gets paid for it and that has made investors far less forgiving in trading, which has propelled global stocks to record highs.

Fears of concentration risks and concerns over how quickly the massive spending on AI infrastructure can provide returns have triggered selloffs in the stock markets this year.

Meanwhile, the widening Middle East conflict has spread a risk-off mood, keeping Brent crude futures hovering near $106 a barrel. That's keeping inflation worries alive and holding bond yields near multi-decade highs although Treasuries found some safe-haven demand on Tuesday.

The sombre mood is set to move to Europe with stock futures pointing to a lower open, with the focus also on luxury firms after LVMH reported weaker-than-expected third-quarter sales as a sharp deterioration in Chinese consumer mood hit demand for its flagship brands Louis Vuitton and Dior.

Four of the six largest US lenders, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo, will report results later in the day. Investors will assess the impact of the recent surge in Treasury yields on dealmaking, lending growth and funding costs across the industry.

Key developments that could influence markets on Tuesday:

German September inflation report

US Bank earnings

(By Ankur Banerjee in Singapore; Editing by Saad Sayeed)