Feb 20 (Reuters) - A look at the day ahead in Asian

markets.

The People's Bank of China's interest rate decision tops a busy

Asia-Pacific economic event calendar on Thursday, with many

stock markets around the world at new peaks or hugging recent

highs as investors try to make sense of the blitz of headlines

surrounding global trade tensions.

A trade war between the U.S. and its major trading partners

would be damaging for growth and markets, so you would think

investors are pricing that risk into their portfolios.

Minutes of the Federal Reserve's Jan. 28-29 policy meeting

on Wednesday showed that officials were concerned about the

inflationary impact of Trump's agenda, with firms saying they

expect to raise prices to pass through the cost of import

tariffs.

The World Trade Organization, meanwhile, said that

discussions were "constructive," after China condemned tariffs

launched or threatened by U.S. President Donald Trump that could

upend the global trading system.

But these risks may be losing their grip on markets. That's

not to suggest complacency is taking over - there have been a

few wobbles recently - but the S&P 500, MSCI World, and

benchmark European and UK equity indices are forging new highs.

Perhaps investors are becoming inured to it all, or they

believe Trump's stance is posturing to secure concessions and

the outcome will be less severe than feared.

Either way, Asian markets are struggling more, with China's

travails, the strong dollar and high U.S. bond yields cooling

local optimism. But there are pockets of strength, like Hong

Kong-listed Chinese tech shares, and sentiment and capital flows

toward China are improving.

Investors cheered the optics of President Xi Jinping's

meeting this week with the country's private sector leaders, the

result of which could be a more substantial recovery in China's

growth, especially the tech sector.

Indeed, Bank of America's latest fund manager survey showed

that China macro sentiment improved in February for the first

time in four months. This was the first uptick in China's

prospects outside of any policy stimulus announcement in the

past three years, suggesting a 'DeepSeek effect' may be at play.

The most bullish development for risk assets this year would

be a pick-up in Chinese growth, the survey showed, far

outweighing other potential scenarios like AI productivity

gains, Fed rate cuts or a Russia-Ukraine peace deal.

The PBOC on Thursday is expected to leave its benchmark one-

and five-year lending rates unchanged at 3.1% and 3.6%,

respectively, as authorities walk the fine line between

prioritizing financial stability and providing more stimulus at

a time when Beijing is facing fresh trade tensions.

The PBOC has shifted towards implementing an "appropriately

loose" monetary policy stance this year, but the weak exchange

rate and banks' evaporating profits are limiting its easing

efforts.

Here are key developments that could provide more direction

to Asian markets on Thursday:

- China interest rate decision

- Australia unemployment (January)

- South Korea producer price inflation (January)