(Updates to Asia afternoon)

* South Korean stocks up more than 15%; US, European futures

rise

* Investor fears over heavy AI spend ease but sentiment

fragile

* BOJ holds rates, yen reverses some intervention gains

* Long-end Treasury yields stay elevated

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 a recent rout in

AI-related stocks had run out of steam.

The yen was also in the spotlight, holding some distance

away from a 40-year trough after suspected coordinated

intervention by various authorities in the previous session, as

the Bank of Japan (BOJ) stood pat on rates on Friday.

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 benchmark KOSPI leapt 17%, reversing

steep losses from earlier in the week. Japan's Nikkei

similarly advanced nearly 4% and MSCI's broadest index of

Asia-Pacific shares outside Japan rose 6%.

That followed surges in AI heavyweights Microsoft ( MSFT ) and

Amazon ( AMZN ) on Thursday, lifting chip stocks broadly after

upbeat earnings and forecasts from both eased concerns over

hefty capital spending.

"Both the earnings as well as the sentiment are kind of

coming back a bit after the really over-exaggerated 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

more than 22% in July, on track for its largest monthly loss

since 2008.

The wild market swings 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 more than 1% and S&P 500

futures added 0.46%. In Europe, EUROSTOXX 50 futures

advanced 0.8%, while FTSE futures and DAX

futures rose 0.47% and 0.6%, respectively.

Chinese markets followed suit. The CSI AI index

and Shanghai's tech-focused STAR Composite Index

gained more than 5% each.

BOJ STANDS PAT ON RATES

The yen was roughly 0.7% weaker at 160.66 per dollar,

briefly slipping after the BOJ kept rates on hold on Friday,

with focus now on BOJ Governor Kazuo Ueda's press conference

later in the day.

"The upward revision to growth, combined with the

acknowledgement of upside inflation risks and the first-ever

recognition that underlying inflation could overshoot the

target, makes this a hawkish hold," said Junyu Tan, North Asia

economist at Coface.

"However, there were few signals suggesting a shift in the

gradual six-month per hike path or next rate hike earlier than

December, prompting markets to unwind some of the

intervention-driven gains."

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 $1.3446,

holding to most of Thursday's 0.7% gain.

MIDDLE EAST UNCERTAINTY LINGERS

Oil prices fell on Friday, as more supplies flowed through

crucial maritime chokepoints, despite a lack of major

breakthroughs in talks between the United States and Iran.

Brent crude futures were down 2% at $87.16 a barrel,

while U.S. crude dropped 2.7% to $81.38 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.-Israeli

war on Iran.

"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 eased 0.6% to $4,077.47 an

ounce.