Asian equities were mostly higher as investors rotated back into artificial-intelligence names, though gains were capped by unease over the Middle East.

A cooling in U.S. inflation has eased the pressure for a near-term Fed tightening, encouraging AI hardware stocks higher. However, the efforts by the U.S. and Iran to inflict economic damage on each other put them further from the diplomatic off-ramp they appeared to reach with the June deal and limited gains for broader equity markets.

Japan's Nikkei Stock Average was flat in early trade Monday, as NAND flash-memory maker Kioxia Holdings jumped 5.7% and chip equipment manufacturer Tokyo Electron gained 1.3%.

The gains were partially offset by the weakness of financial stocks as Nomura Holdings which shed 0.9% and Mizuho Financial Group which dropped 2.0%.

Investors are digesting Japan's preliminary economic data which showed real GDP data grew 0.3% during the April-June period from the previous quarter. That compared with the 0.5% expansion recorded in the first quarter and the 0.5% growth expected in a survey of economists by data provider Quick.

While the print indicates that Japan's economy has yet to lose significant momentum even as the Middle East crisis drives up oil prices and stokes inflation, the overall picture looks far from reassuring as geopolitical tensions persist.

"The boost to consumption from policy measures is already fading, and inflation will increase in the second half as firms will pass on increased costs, deteriorating consumers' purchasing power," said Norihiro Yamaguchi, an economist at Oxford Economics.

Hong Kong's Hang Seng Index gained 1.4% and China's Shanghai Composite Index moved up 0.4%. South Korea's Kospi was closed due to a holiday and Singapore's FTSE Straits Times Index edged 0.8% lower.

The lack of progress in reaching a peace deal in Iran and the return of geopolitical risk premiums sent oil prices higher.

Front-month West Texas Intermediate crude oil futures were recently 0.3% higher at $82.63 per barrel and front-month Brent crude oil futures were 0.5% higher at $88.97 a barrel.

Iran's hard-line leaders viewed the memorandum signed between Washington and Tehran in June just an attempt by the U.S. and Israel to take pressure off the global economy and buy time for a bigger attack down the road, The Wall Street Journal reported, citing Iranian and Arab officials. Instead of putting faith in talks, they took the past two months to prepare for a bigger fight.

Shipping through the Strait of Hormuz shipping remains severely disrupted with the number of vessels passing through over the weekend dwindling, Phillip Nova oil analyst Priyanka Sachdeva noted. She added that oil prices could move sharply higher if physical barrels stop moving.