(Updates for afternoon trade)

* MSCI EM Asia at highest since March 3

* Rupiah hits record low of 17,140/dollar

* Taiwan stocks hit record high

* MAS tightens monetary policy, flags inflation risk

By Rajasik Mukherjee

April 14 (Reuters) - Most emerging Asian stocks and currencies strengthened on Tuesday, as hopes of further U.S.-Iran talks improved risk appetite globally, even as the U.S. military blocked shipping traffic in and out of Iran's ports.

Negotiating teams from Washington and Tehran could return to Pakistan this week for peace talks after the previous one held over the weekend failed, sources told Reuters.

The MSCI EM Asia equities index and a broader gauge of global EM equities advanced about 2% each, hitting their highest in six weeks, with a subset of ASEAN stocks also touching an early-March peak.

"The markets really want to give peace a chance, accentuating the positives and downplaying the negatives as tensions between the U.S. and Iran simmer away," said Kyle Rodda, a senior financial market analyst at Capital.com.

"Despite this, the risk for further volatility remains high, with headline risk continuing to drive the action. In addition to that, global energy markets remain under strain."

East Asia's artificial-intelligence heavyweights, South Korea's tech-dominated index and Taiwan's stock index at the forefront of gains.

The KOSPI rose as much as 2.8% to hit a more-than one-month high, while its Taiwanese peer added 2.5% to log a record high of 36,341.44 points.

In Singapore, the Monetary Authority of Singapore expectedly tightened its monetary policy settings, as an Iran war-fuelled energy shock threatened to push up core inflation.

"The MAS likely tightened its monetary policy settings to pre-emptively stabilise inflation expectations," analysts at Barclays said in a note.

They added that there was scope for the currency to strengthen further, but that depended on the upcoming inflation data.

Stocks in the city-state rose as much as 0.6% as the global market sentiment stayed positive, while its dollar was largely unfazed by the monetary tightening.

Jakarta stocks surged 2.3% to hit their highest since March 6, with Chandra Asri, Indonesia's leading petrochemical firm, rising 3.5%.

However, the Indonesian rupiah sank to a lifetime low of 17,140 per U.S. dollar, as volatility in oil prices and fiscal and governance concerns keep it under pressure.

"This is a seasonally weak period for rupiah, in midst of importers' dollar demand, and dividend repatriation, besides concerns over the feed-through of higher oil on the fiscal books," said Radhika Rao, senior economist at DBS Bank.

Among currencies, the Malaysian ringgit appreciated 0.5% to 3.955 a dollar, its highest level since March 25.

The Philippine peso and the Taiwan dollar also inched higher, with the latter touching its highest since early March.

Thailand's stock market was closed for a holiday, while the baht traded largely flat. Financial markets in India were also closed for a holiday.

HIGHLIGHTS:

** South Korea's Lee warns Middle East conflict to keep oil price high, orders quick aid rollout

** Japan finance minister asks trade minister to avoid remarks on BOJ policy

** US, Iranian teams could return to Islamabad for peace talks this week, four sources say

Asia stock indexes and currencies at 0709 GMT

COUNTRY FX RIC FX DAILY FX YTD INDEX STOCKS STOCKS

% % DAILY YTD %

%

Japan +0.31 -1.45 China >

India >

Indonesia -0.15 -2.63 Malaysia +0.56 +2.66 Philippin +0.33 -1.66 -0.68 -0.66

es

S.Korea >

Singapore +0.12 +1.11 0.68 8.00

Taiwan >

Thailand >