* Nikkei jumps 4.3%, South Korea surges 8.3%

* Oil prices hit two-month lows on peace deal hopes

* Weaker dollar help metals bounce, Treasuries hold gains

By Stella Qiu

SYDNEY, June 12 (Reuters) - Asian stocks joined a global

rally on Friday on hopes a Middle East peace deal may finally

materialise, while the dollar and bond yields dropped and oil

prices fell to two-month lows, tempering inflation fears.

All eyes are on the hotly-awaited market debut of Elon

Musk's SpaceX, which has made history with the

biggest-ever initial public offering. The IPO raised a record

$75 billion, valuing the rocket and spacecraft manufacturer at

$1.77 trillion and making Musk the world's first trillionaire.

President Donald Trump said on Thursday that a peace deal

could be signed as soon as this weekend, hours after threatening

more strikes on Iran. He said negotiations with Tehran had

advanced to the highest levels of Iran's leadership and had been

approved by a broad coalition of regional powers.

Trump's remarks follow repeated bouts of optimism from the

president that have failed to yield a deal, rattling market

sentiment.

Nonetheless, "This does look perhaps a bit more tangible

than we have had," said Ray Attrill, head of FX strategy at the

National Australia Bank.

"If we hear something from Iran that sounds positive, the

odds (of a peace deal) are clearly going to flip quite

dramatically."

The deal, if confirmed, would be the most significant

diplomatic breakthrough yet to end the three-month-old war,

which has sent global energy prices sharply higher. The European

Central Bank had to raise interest rates for the first time in

nearly three years to nip war-driven inflation in the bud.

Oil prices slumped to two-month lows on the news of an

agreement. U.S. West Texas Intermediate (WTI) crude futures

fell 1.9% to $86.08 a barrel, on top of a 2.6% drop

overnight. Brent dropped 1.5% at $89.08 per barrel,

having fallen nearly 3% overnight.

Japan's Nikkei rose 4.3%, while Australia's

resources-heavy shares climbed 1.8%. South Korea's KOSPI

surged 8.3%.

Overnight, Wall Street rallied with the three major indexes

registering their biggest daily gains since April 8 when the

U.S. and Iran agreed to a temporary ceasefire. The Nasdaq jumped

2.5%, helped by expectations of a strong market debut of Musk's

SpaceX.

Data showed that U.S. producer prices increased more than

expected in May, leading to the largest annual gain in 3-1/2

years as the Middle East conflict drove up energy prices. On the

labor market front, the number of Americans filing claims for

unemployment benefits increased marginally last week, pointing

to continued labor market resilience in early June.

Treasuries gained as hopes of a peace deal in the Gulf led

markets to trim bets of a rate hike from the Federal Reserve

this year. Pricing for a hike in October has come back to 36%

from 51%.

Two-year Treasury yields were steady at 4.066% on

Friday, having slumped 6 basis points overnight. The benchmark

10-year Treasury yields held at 4.4631%, after

falling almost 8 bps overnight.

The dollar nursed losses on lower yields. The dollar index

, which measures the greenback against its major peers,

held at 99.78, having lost 0.4% overnight.

It edged up 0.1% to 160.19 yen, after retreating

0.4% on the prior session. Traders are still on high alert for

any intervention from Japanese authorities as the yen stays

below the critical 160 level.

Precious metals caught some relief from the lower dollar.

Spot gold rose 0.2% to $4,222 an ounce, following a 3.5%

jump overnight, while spot silver rose 0.3% to $67.52 an

ounce, after a 5.8% gain.