(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.