EMERGING MARKETS-Asian emerging stock markets rebound sharply as war worries ease

By Roushni Nair

March 5 (Reuters) - Asian emerging equities rebounded on Thursday, led by South Korea and Taiwan, with markets hopeful the U.S. and Iran would seek an off-ramp from hostilities, easing oil supply fears and drawing buyers back after an aggressive multi-day sell-off.

The recovery followed a bruising Wednesday session in which benchmark indexes in both Seoul and Bangkok triggered automatic circuit breakers after slides of more than 8%.

The MSCI emerging Asia index .MIMS00000PUS rose 3%, snapping a four-day slide and recouping part of the almost 10% it had shed.

South Korea’s KOSPI .KS11 jumped as much as 12%, ending three straight days of losses and making back nearly all of Wednesday’s record fall. It had dropped a total of nearly 17% over the prior three sessions.

The bounce in equities followed a New York Times report on Wednesday that Iran's intelligence ministry had indicated it was open to talks with the U.S. CIA to help bring the conflict to an end.

Maybank said sentiment looked firmer overnight, but drivers were unclear, noting the report was puzzling because the purported outreach had occurred days earlier and Tehran had publicly denied any intention to negotiate.

The bank said optimism in markets held up even after Iran rejected the report.

Taipei shares .TWII rose as much as 4.5%, set for their best session since early April after losing about 5% over the previous three sessions.

Jakarta stocks .JKSE gained more than 3% after dropping 6.5% over the same period.

Indonesian assets largely brushed off recent outlook cuts by Moody’s and Fitch that cited rising policy uncertainty.

Oil prices remained elevated with the U.S.–Iran war widening on Wednesday. A U.S. submarine sank an Iranian warship off the coast of Sri Lanka, killing at least 80 people, and NATO defences destroyed an Iranian ballistic missile fired towards Turkey.

Elsewhere, moves were modest, with stocks in India .NSEI, Malaysia .KLSE and the Philippines .PSI up between 0.3% and 0.7%.

Markets were likely to remain jumpy as traders latch on to each new headline, said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho Securities, adding that sharp shifts in energy prices remained the biggest source of volatility and pressure on the countries most reliant on energy imports, such as South Korea.

Most regional currencies traded lower as the U.S. dollar index =USD rose 0.2%.

The Philippine peso PHP= and the South Korean won KRW= led declines, down 0.4% each, while the Indonesian rupiah IDR=, Thai baht THB=TH and Singapore dollar SGD= were little changed.

Maybank said it would not rule out continued volatility in the dollar index and Asian FX, particularly the won, as markets grapple with geopolitical uncertainty.

In Malaysia, investors awaited a central bank decision due later in the day, with policymakers expected to keep the key rate steady at 2.75%.

The ringgit was modestly softer on Thursday, but remained up about 3% year-to-date, with the steady policy backdrop helping preserve carry and supporting demand for local bonds.

Elsewhere, China set its growth target at a slightly lower pace than the previous year in a closely watched, wide-ranging economic plan with leadership signalling that policy settings will stay largely unchanged this year.

HIGHLIGHTS:

** Philippine February inflation quickens to 2.4% y/y, fastest in a year

** Thai February headline CPI eases more than forecast to 0.88% on-year

(Reporting by Roushni Nair in Bengaluru; Editing by Kevin Buckland)

((Roushni.nair@thomsonreuters.com))