By Rae Wee
SINGAPORE, July 31 (Reuters) - Asian markets rallied hard with Wall Street on Friday as South Korea's battered market made a record comeback, stirring hopes that a recent selloff in AI-linked assets may be near an end.
The yen was also in the spotlight, holding some distance away from a 40-year trough after suspected coordinated intervention by various authorities in the previous session, as the Bank of Japan (BOJ) stood pat on rates on Friday.
Long-end U.S. Treasury yields held near 19-year
highs while short-end yields eased, steepening the curve as doubts grow over the Federal Reserve's ability to anchor inflation expectations. [US/]
South Korea's benchmark KOSPI leapt 14%, reversing steep losses from earlier in the week. Japan's Nikkei similarly advanced more than 3% and MSCI's broadest index of Asia-Pacific shares outside Japan rose 5%.
That followed surges in AI heavyweights Microsoft and Amazon overnight, lifting chip stocks broadly after upbeat earnings and forecasts from both eased concerns over hefty capital spending.
"Both the earnings as well as the sentiment are kind of coming back a bit after the really overexaggerated move in the earlier part of the week," said Fabien Yip, a market analyst at IG.
"The AI demand story didn't really decelerate, it seems like it's still sustainable. So the selloff that we saw ... is maybe the market overreacting to some of those concerns around (capex spending)."
Despite Friday's turnaround, the KOSPI was still set to lose nearly 25% in July, for its largest monthly loss since 1997.
The wild market swings prompted South Korean authorities to rein in the leveraged products that have wreaked havoc and wiped out the savings of some retail investors.
"Clients are asking whether hyperscalers will maintain current capex plans and whether AI adoption will translate into meaningful revenues and productivity gains," said Jacky Tang, Deutsche Bank's Private Bank emerging markets chief investment officer.
"Our view is that the correction reflects a reset in expectations after an exceptional rally, rather than a material weakening of the underlying investment case."
Nasdaq futures were up 0.7% and S&P 500 futures added 0.3%. In Europe, EUROSTOXX 50 futures advanced 0.66%, while FTSE futures and DAX futures rose 0.37% and 0.43%, respectively.
Chinese markets followed suit. The CSI AI index and Shanghai's tech-focused STAR Composite Index rose more than 7% each.
BOJ STANDS PAT ON RATES
The yen was roughly 0.7% weaker at 160.66 per dollar, briefly slipping after the BOJ kept rates on hold on Friday, with focus now on BOJ Governor Kazuo Ueda's press conference later in the day.
"As an initial reaction, the yen weakened briefly because there was no strong message regarding the exchange rate. However, this was only a momentary reaction and has not developed into a broader trend," said Hirofumi Suzuki, chief FX strategist at SMBC.
"Board member Takata's dissent in favor of another consecutive rate hike was not widely anticipated by the market."
The yen had already been sliding prior to the decision, as traders tested Tokyo's resolve after Japan was suspected to have intervened in the foreign exchange market in New York hours on Thursday, leading to a 2.4% surge in the currency.
In a rare move, South Korea's foreign exchange authorities also conducted dollar-selling intervention on Thursday, while the Nikkei reported that U.S. authorities also conducted so-called "rate checks", pointing to a possible joint intervention.
A trader, who declined to be named because they were not authorised to speak to the media, said dollar/yen liquidity was thin on Friday due to nerves over further action from authorities.
The latest bout of strength in the yen in turn kept pressure on the dollar, leaving the euro perched near an over one-month high at $1.1512, while sterling bought $1.3449, holding to most of Thursday's 0.7% gain.
MIDDLE EAST UNCERTAINTY LINGERS
Oil prices fell on Friday, with Brent crude futures down 1% at $88.16 a barrel, while U.S. crude dropped 1.5% to $82.31 a barrel. [O/R]
A drone strike that sparked fires on two gas vessels in Egypt's Mediterranean port of Damietta has raised a new threat to shipping through the Suez Canal, one of the last major export routes available to Saudi oil amid the expanding U.S.-Iran war.
"The striking feature of the market reaction is that energy prices did not panic despite the deterioration in the conflict," said Rodrigo Catril, senior FX strategist at National Australia Bank.
Elsewhere, spot gold was down 0.7% at $4,072.93 an ounce. [GOL/]
(Reporting by Rae Wee; Editing by Shri Navaratnam and Clarence Fernandez)
