June 4 (Reuters) - A look at the day ahead in Asian

markets.

Asian markets could be in for a choppy ride on Tuesday, with

investors unsure whether to interpret Monday's steep fall in

U.S. Treasury yields and the dollar as an encouraging sign for

risky assets or a warning that growth is evaporating.

Given that Asian shares on Monday posted their biggest rise this

year, before the weak ISM U.S. manufacturing report triggered

the slide in yields, investors may err on the side of caution

and pare back risk exposure, not add to it.

If so, it will suggest the 'bad news is bad news' narrative

is taking hold - easing financial conditions on their own are

not enough to lift asset prices; instead, the deteriorating

macro conditions driving down yields and the dollar are what's

important for asset prices.

By some measures, a shift in the U.S. economic outlook is

already underway. The Atlanta Fed on Monday slashed its GDPNow

model forecast for second quarter growth to 1.8% from 2.7%. Two

weeks ago it was 3.5%, and three weeks ago it was over 4.00%.

The sugar high of rate cut expectations can only last so

long. And in truth, rate cut expectations have not shifted all

that much lately because inflation remains stickier than

policymakers would like.

The U.S. growth engine is particularly important for Asia

right now because China's post-lockdown recovery is so fragile,

and uncertainty persists around Japan's policy normalization,

rising bond yields and record weak currency.

That's the backdrop to Asian markets on Tuesday which also

sees the release of manufacturing PMI data from Malaysia and

Thailand, South Korean inflation, and the official results from

India's general election.

Indian markets' initial reaction on Monday to the weekend's exit

polls showing a decisive mandate and third term for Prime

Minister Narendra Modi was overwhelmingly positive - shares hit

lifetime highs, the rupee gained and bond yields dropped.

The broader Nifty index closed 3.25% higher at 23,263.90

points after touching a record high 23,338.70 earlier in the

day, while the BSE index closed up 3.39% at 76,468.78 points,

just off its lifetime peak of 76,738.89 also touched earlier.

India's boom helped drive the continent's stocks higher. The

MSCI Asia Pacific ex-Japan index snapped a four-day losing

streak, surging more than 2% for its best day since November.

Surprisingly strong factory activity from China, and to a lesser

extent South Korea and Taiwan, also helped. China's 'unofficial'

Caixin/S&P Global manufacturing PMI report showed the fastest

pace of growth since June 2022, contrasting with an official

survey on Friday that showed a surprise fall in activity.

The Caixin survey is believed to be skewed more toward

smaller, export-oriented firms, which may help explain why Asian

stocks took off so much on Monday. Some of that optimism,

however, may cool on Tuesday.

Here are key developments that could provide more direction

to markets on Tuesday:

- South Korea inflation (May)

- India election results

- Australia current account (Q1)