Most Asian stocks fell on Friday, with technology-heavy indices suffering severe losses as the sector was battered by profit-taking even as weaker U.S. inflation data fueled hopes for interest rate reduction.

Regional stocks closely tracked overnight losses on Wall Street, as heavyweight technology sectors, particularly chipmakers and stocks with artificial intelligence exposure, were hammered by profit-taking. As a result, the NASDAQ Composite fell by over 2%.

U.S. stock futures remained stable in Asian trade as attention shifted to the start of the second-quarter earnings season, with a wave of major banks scheduled to report on Friday.

Stock markets fell as U.S. consumer price index data for June came in lower than expected, prompting traders to increase their wagers that the Federal Reserve will begin cutting interest rates in September.

Asian tech rocked by profit-taking; Nikkei falls 2%
Asia's tech-heavy indices, which had previously outperformed their regional peers, suffered the greatest losses on Friday. The sector experienced a significant amount of profit-taking as the hoopla surrounding AI produced a major valuation meltdown this year.

Traders were spotted moving into other economically sensitive sectors that are expected to gain from reduced interest rates.

Japan's Nikkei 225 exemplified this trend, falling 2.2% from record highs set on Thursday. The broader TOPIX, which is much less tech-heavy than the Nikkei, dropped 0.9%. Chipmakers Renesas Electronics Corp (TYO:6723), Advantest Corp. (TYO:6857), and Tokyo Electron Ltd. (TYO:8035) all fell between 4% and 7%, while tech investment firm SoftBank Group Corp. (TYO:9984) down 3.2%.

South Korea's KOSPI fell 1.4%, with memory chip maker SK Hynix Inc (KS:000660) dropping more than 3%.

TSMC (TW:2330) (NYSE:TSM), the world's largest contract chipmaker and a key driver of the recent tech rally, fell more than 4% from its record highs.

Hong Kong outperforms on bargain shopping; ASX reaches record high.
However, leading Chinese technology firms mostly avoided decline in their worldwide peers, as the sector's relatively low valuations prompted a spate of bargain shopping.

Baidu (NASDAQ:BIDU) Inc (HK:9888), Alibaba Group Holding Ltd (HK:9988), and Tencent Holdings Ltd (HK:0700) all surged more than 2%, contributing to the Hang Seng index's 2% rally. The index also moved away from its two-month low set earlier this week.

Chinese markets plummeted less than their broader counterparts, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indices remaining flat on Friday.

Australia's ASX 200 outpaced its Asian counterparts, climbing 0.9% to a new high of 7,969.10 points. The index, which has a low proportion of technology firms, was lifted by inflows into economically sensitive sectors including mining and industrials.

These sectors climbed across the board in Asia, as they are likely to profit from cheap interest rates.

Futures for India's Nifty 50 index indicated a flat opening, with gains in industrials and consumer sectors expected to outweigh losses in technology. Earlier this week, the Nifty and the BSE Sensex 30 reached historic highs amid persistent optimism about the Indian economy.