Taiwan's main stock index closed lower but pared its drop as foreign funds bought in ahead of a bigger MSCI weighting — mildly reassuring for investors after a rough start to the day.

• The Taiex fell for the day but bounced off its low as passive foreign funds added Taiwanese shares before MSCI's higher weighting kicked in after Monday's close.
• Chip stocks led the selling after a sharp drop in US semiconductor shares, though TSMC and other big names clawed back most of their losses.
• The early slide followed hawkish comments from Fed Chair Kevin Warsh at Jackson Hole and a jump in oil prices after new military strikes in the Middle East.
• Circuit board maker Unimicron sank 10% after prosecutors opened a probe into claims it relabeled China-made goods as Taiwanese — a risk that spreads to the many ETFs holding it.
• Plastics, shipping and financial stocks rose, helped by higher freight rates.

Outlook: The Unimicron investigation is the near-term wild card, since the stock sits in several widely held ETFs.