* South Korea's Kospi up more than 10%; Nikkei rises 4.5%
* Investor fears over heavy AI spending ease but sentiment
still fragile
* Yen reverses some of its intervention gains as markets
test Tokyo's resolve
* Long-end Treasury yields remain elevated
(Updates with China, Hong Kong markets)
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, which came
ahead of the Bank of Japan's (BOJ) rate decision later in the
day.
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 more than 10% on Friday,
reversing steep losses from earlier in the week. Japan's Nikkei
similarly advanced 4.5% and MSCI's broadest index of
Asia-Pacific shares outside Japan rose 4.6%.
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
over 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.
"(The market sentiment) is fragile around the AI debate,"
said Ji Young Park, senior EM equity portfolio manager at
Amundi.
"The market performance has been narrow in Asia ex-Japan,
mostly related to AI... given the sharp correction we've had
across the markets that have AI exposure, we believe we are
close to the end of this prolonged volatility."
Nasdaq futures were up 0.6% and S&P 500 futures
added 0.3%. In Europe, EUROSTOXX 50 futures
advanced 0.5%, while FTSE futures and DAX futures
rose 0.25% and 0.34%, respectively.
Chinese markets followed suit. China's CSI AI index
rose more than 7%. The Hang Seng Tech index
advanced 0.5%.
TESTING TOKYO'S RESOLVE
The yen was 0.6% weaker at 160.55 per dollar,
reversing some of Thursday's 2.4% surge after Japan intervened
in the foreign exchange market to haul the currency away from
40-year lows.
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 coordinated
intervention.
"The brutality of the move - USD/JPY falling from near-164
to sub-160 in a sharp jolt - is as poignant as the timing, just
ahead of today's BOJ meeting," Vishnu Varathan, head of APAC
macro strategy at Mizuho, said of Thursday's sharp rise in the
yen.
"The timing is no coincidence. Clearly the authorities are
pre-emptively warning or insuring against JPY selloff on an
expected BOJ hold."
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 strength in the yen in turn kept pressure on the dollar,
leaving the euro perched near an over one-month high at
$1.1514, while sterling bought $1.3457, holding to most
of Thursday's 0.7% gain.
MIDDLE EAST UNCERTAINTY LINGERS
Oil prices fell on Friday, with Brent crude futures
were down 1.2% at $88.00 per barrel, while U.S. crude
dropped more than 2% to $81.82 a barrel.
A drone strike on gas vessels in Egypt's Mediterranean port
of Damietta signalled a potential new front in the U.S.-Iran
war, raising the prospect of threats to navigation through the
Suez Canal, one of the last remaining export routes for Saudi
oil.
"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 0.5% at $4,082.88 an
ounce.