* South Korea's Kospi up more than 10%; U.S., European
futures rise
* Investor fears over heavy AI spending ease but sentiment
still fragile
* Yen dips after BOJ holds, reverses some of its
intervention gains
* Long-end Treasury yields remain elevated
(Updates with BOJ decision)
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 the recent selloff in
AI-linked assets may be near an end.
The yen was also firmly in the spotlight, holding
some distance away from a 40-year trough after suspected
coordinated intervention from various authorities in the
previous session, though it gave up more of its gains after the
Bank of Japan (BOJ) left rates on hold.
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.
South Korea's Kospi leapt 14% on Friday, reversing
steep losses from earlier in the week. Japan's Nikkei
similarly advanced more than 4% and MSCI's broadest index of
Asia-Pacific shares outside Japan rose 5%.
That followed surges in AI heavyweights Microsoft ( MSFT )
and Amazon ( AMZN ) overnight, lifting chip stocks broadly after
upbeat earnings and forecasts from the pair 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, marking its largest monthly loss since 1997.
The wild swings in the market had 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 0.66% and S&P 500 futures
added 0.25%. In Europe, EUROSTOXX 50 futures
advanced 0.58%, while FTSE futures and DAX futures
rose 0.36% and 0.45%, 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 nearly 0.8% weaker at 160.76 per dollar,
after the BOJ on Friday kept rates on hold and gave little
indication of when further hikes could come.
"The decision to keep rates unchanged was in line with
expectations and came as no surprise, given that the BOJ had
only just raised rates in June. However, board member Takata's
dissent in favor of another consecutive rate hike was somewhat
unexpected," said Hirofumi Suzuki, chief FX strategist at SMBC.
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 $1.1509, while sterling bought $1.3447,
holding to most of Thursday's 0.7% gain.
MIDDLE EAST UNCERTAINTY LINGERS
Oil prices fell on Friday, with Brent crude futures
down more than 1% at $88.00 per barrel, while U.S. crude
dropped 1.8% to $82.08 a barrel.
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.