EMERGING MARKETS-Asian stocks climb on Fed rate cut bets; regional FX subdued

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By Roushni Nair

May 14 (Reuters) – Asian shares hit multi-month highs on Wednesday as a softer U.S. inflation print cemented expectations for more interest rate cuts by the Federal Reserve, though currencies fell, with Indonesian rupiah and Thailand’s baht among the top losers.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose more than 1%.

Taiwan stocks .TWII jumped more than 2% to four-month highs, while Indonesia shares .JKSE climbed over 2%, reaching their highest levels since early-February.

Trading resumed after a two-day holiday in Indonesia, allowing investors to finally react to the weekend’s U.S.-China trade pact over the weekend.

Equities in Thailand .SETI and Malaysia .KLSE reversed earlier losses to trade flat.

The agreement in Geneva exceeded market expectations, with the United States and China sharply dropping extra retaliatory tariffs imposed on each other.

“There will be a close watch on how countries such as Japan, South Korea, Taiwan and Thailand fare in trade negotiations, as any successful deal on their part could be a boon for their respective currencies if capital inflows increase,” said Tim Waterer, a market analyst at KCM Trade.

Thailand’s finance minister said the country has promised U.S. officials it would combat illegal transshipments through its ports, boost American imports and widen market access as part of efforts to avoid punitive tariffs.

Meanwhile, regional currencies were mostly subdued, with the Indonesian rupiah IDR= slipping as much as 0.5% to its lowest since May 2, while the Thai baht THB=TH also dropped as much as 0.5%.

South Korean won KRW=KFTC and the Philippine peso PHP= lost 0.3% each.

The U.S. dollar index =USD, which measures the currency against six major counterparts, traded flat at 100.87 following its biggest decline in more than three weeks overnight. USD/

Investors have fully priced in a September Fed rate cut and expect another before year-end, with Tuesday’s benign inflation figures and easing trade tensions strengthening the case for monetary loosening.

Separately, the Taiwan dollar TWD=TP strengthened 0.6%, rebounding from a six-day slide as foreign investors poured funds into local equities despite early central bank intervention, according to UBS analysts.

Last week’s 6% two-day surge in the Taiwan dollar – its largest on record – came amid speculation about currency appreciation commitments in potential U.S. trade talks, though Taiwan’s central bank and president firmly denied such arrangements.

HIGHLIGHTS:

** Malaysia’s economy likely lost momentum in first quarter

** Thai central bank says policy accommodative, no deflation

(Reporting by Roushni Nair in Bengaluru; Editing by Rashmi Aich and Varun H K)

((Roushni.Nair@thomsonreuters.com))