* KOSPI leads Asian market surge with 10% gain

* U.S. Senate backs Trump's military campaign against

Iran

* China sets 2026 growth target at 4.5%-5%

By Rocky Swift

TOKYO, March 5 (Reuters) - Asian shares rallied on

Thursday with a decline in U.S. Treasuries pointing to a

tentative recovery in risk appetite that has been hammered by

the escalating war in the Middle East.

South Korea's KOSPI gauge recovered its steep losses in the

prior session following a rally on Wall Street on hopes the

United States and Iran will seek an off-ramp from hostilities.

Oil and gold traded higher.

China set its growth target at a slightly lower pace than

the previous year in a closely watched, wide-ranging economic

plan. The U.S. Senate backed President Donald Trump's military

campaign against Iran, suggesting no quick resolution to a war

that has roiled financial markets, transportation networks, and

energy production.

"Geopolitical risk can flare up again very quickly, so any

early gains we see this morning across Asia-Pacific region share

markets may not last," Paco Chow, dealing manager at Moomoo

Australia and New Zealand, said in a note. "The outlook will

remain cautious until we see oil flows return to normal."

MSCI's broadest index of Asia-Pacific shares outside Japan

jumped 2.9%. South Korea's KOSPI led

regional benchmarks with a 10.4% surge, while Japan's Nikkei

jumped 2.9%.

The yield on benchmark U.S. 10-year notes rose

2.7 basis points to 4.109%, as the 30-year bond

yield rose 3.1 basis points to 4.7479%.

The U.S.-Israel war on Iran widened sharply on Wednesday

after a U.S. submarine sank an Iranian warship and NATO air

defences destroyed an Iranian ballistic missile fired towards

Turkey.

But equity markets in Europe and the U.S. took solace from a

pledge by Trump to provide protection to shippers and a New York

Times report that Iranian intelligence had reached out to the

CIA early in the war about a path towards ending it.

Iran later rejected the report, while in the U.S., the

Republican-led Senate voted to block a bipartisan resolution

aiming to stop the air war.

Concerns about energy supply continued to drive up oil

prices. U.S. crude rose 3.01% to $76.91 a barrel and

Brent rose to $83.43 per barrel, up 2.49% on the day.

Spot gold rose 0.84% to $5,178.42 an ounce.

"The market continues to trade on headlines, and we're

likely to see further volatility ahead," Henry Russell, a

London-based economist for ANZ, said on a podcast. "We're seeing

energy supply still facing constraints with production

facilities going offline and more likely to follow if this

conflict persists any longer."

China set its economic growth target for 2026 at 4.5%-5%, a

slight downgrade from the 5% pace achieved last year, leaving

room for efforts to curb industrial overcapacity and rebalance

the economy. Beijing also released its 15th five-year plan,

pledging investments in innovation, high-tech industries, and a

"notable" increase in household consumption.

China's blue-chip CSI300 Index gained nearly 1% in

early trading, while the Shanghai Composite Index added

0.4%.

The greenback took a breather after recent gains on

safe-haven demand. The dollar index, which measures the

greenback against a basket of currencies, was flat at 98.81.

The Japanese yen advanced 0.2% to 156.75 per dollar.

In cryptocurrencies, bitcoin fell 0.78% to $72,774.53

while ether declined 0.94% to $2,130.43.