EMERGING MARKETS-S.Korea leads Asia selloff as war on Iran sends oil surging

Updates for afternoon trade

By Roushni Nair

March 3 (Reuters) - South Korea led the decline in Asian markets on Tuesday, with a weaker won and plunging equities magnifying jitters across the region after U.S.-Israeli war on Iran sent oil prices soaring and revived inflation fears for importers of the commodity.

The won KRW=KFTC fell 1.9% to a more than three‑week low of 1,467.80, and the KOSPI .KS11 sank 7.2% to mark the worst session in nearly four months, reflecting the strain on South Korea's oil-import dependent economy.

Markets were shut on Monday, leaving South Korea to play catch-up to the breakout and expansion of military conflict in the Middle East. The rout tripped a five-minute "sidecar" halt on programme trading after KOSPI 200 futures fell more than 5%.

The U.S. and Israel launched sweeping weekend strikes on Iran, killing Supreme Leader Ayatollah Ali Khamenei. Tehran retaliated by shutting the Strait of Hormuz, a corridor for about 20% of global oil flows.

Israeli Prime Minister Benjamin Netanyahu said he expected the war against Iran was "not going to take years", as the conflict widened with Israel attacking Iran-backed Hezbollah targets in Lebanon and Iran hitting Gulf states that host U.S. bases.

Oil prices leapt, taking year-to-date gains to around 30%, including an almost 10% jump after the attacks. O/R

The dollar index =USD hit a six-week high on safe-haven demand and worries oil-driven inflation could curb the U.S. Federal Reserve's ability to cut rates this year. USD/

Losses clustered in energy-importing currencies in holiday-thinned trade, with the baht THB=TH falling 0.7% and the Philippine peso PHP= down 0.4%, extending Monday's declines.

The Taiwan dollar TWD=TP slipped 0.6%. The ringgit MYR= eased 0.2%, while the Singapore dollar SGD= and Indonesian rupiah IDR= were little changed. The yuan CNY=CFXS rose marginally.

Stocks in Kuala Lumpur .KLSE and Manila .PSI clawed back some losses, up 0.7% and 0.1%, while Singapore's STI .STI added 0.9% after Monday's steep drop. Taipei shares .TWII dropped 2.2%, and Tokyo stocks .N225 also fell 2%.

Investors seeking regional diversification may consider Asia ex-Japan equities – particularly Singapore stocks, Afdhal Rahman, executive director, wealth advisory, OCBC, said.

"The local market is increasingly viewed as a safe haven in the region, buttressed by predictable policymaking, a stable currency and a robust economy," he added.

Rising crude prices are also rekindling worries that inflation across Asia could re-accelerate, narrowing the window for central banks to ease.

"Overall, we don't think Asian central banks will hike rates just because of this risk, but it could delay rate cuts for the likes of the Philippines and Indonesia, and further reduce the probabilities of cuts for markets such as India and South Korea," said Michael Wan, a senior economist at MUFG.

Key data this week include inflation prints from the Philippines and Thailand on Thursday and South Korea's CPI on Friday. Malaysia's central bank meets on Thursday and is widely expected to keep rates steady.

HIGHLIGHTS:

** Indian and Thai markets are closed for public holidays

** Philippines has sufficient oil supply, says President Marcos

** India's February palm oil imports jump 10% to six-month high

** Malaysia's February palm oil stocks seen at four-month low - Poll

(Reporting by Roushni Nair in Bengaluru; Editing by Sumana Nandy and Mrigank Dhaniwala)

((Roushni.Nair@thomsonreuters.com))