* 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.