EMERGING MARKETS-Asian shares up on U.S.-China hopes; Pakistan stocks fall after Indian air strikes

By Roushni Nair

May 7 (Reuters) - Asian shares rose and currencies rebounded on Wednesday, lifted by hopes that an upcoming high-level U.S.-China meeting could ease trade tensions, while Pakistan's stock market tumbled after military action by India heightened cross-border tensions.

Equity markets in Manila .PSI and Bangkok .SETI advanced 0.7% and 2.2%, respectively, while shares in Seoul .KS11 and Jakarta .JKSE added 0.5% and 0.9%.

U.S. President Donald Trump's remarks that Beijing is eager to strike a trade deal to end the tariff war, signalling a potential summit between the economic power-houses "at the right time," fuelled market optimism across Asia.

Meanwhile, India and the United Kingdom successfully concluded a free trade agreement, Prime Minister Narendra Modi said on Tuesday.

The Indian rupee INR=IN,however, declined 0.2% after military action by India against Pakistan heightened cross-border tensions. Shares were flat.

Pakistan's stock exchange .KSE slumped as much as 5.8% to mark its lowest level since December 20.

China's central bank bolstered Chinese markets by slashing bank reserve requirements by 50 basis points—injecting 1 trillion yuan into the economy—while simultaneously cutting seven-day reverse repo rates by 10 basis points to combat slowing growth.

The Chinese yuan CNY=CFXS traded rangebound, last down 0.2%, while equities in Shanghai .SSEC climbed 0.4%.

Asian currencies have whipsawed dramatically in recent days, with the Taiwan dollar TWD=TP posting a historic 6% two-day surge against the greenback before steadying Wednesday, up 0.1%.

In parallel with the Taiwan dollar's record move in recent days, the South Korean won KRW=KFTC on Monday also clocked its biggest two-day rally in 15 years.

The won firmed to its strongest level since November 29 on Wednesday, strengthening as much as 1.6% to 1,379 per U.S. dollar, after traders returned from an extended holiday.

Analysts credit speculation around currency appreciation commitments in a potential U.S. trade scenario, though denied firmly by Taiwan's central bank and president, for the sudden capital influx into Taiwan's dollar-heavy, unhedged market.

The U.S. dollar index =USD extended its losing streak to a fourth consecutive session, down 0.2% at 99.42.

"The trend has been a weaker dollar and that has belatedly come to Asia," said Moh Siong Sim, currency strategist at Bank of Singapore. "Investors are increasingly worried about dollar weakness as they start to manage their overweight dollar positions."

These developments unfold as the U.S. Federal Reserve begins its two-day policy meeting, with Chair Powell expected to maintain rates.

Meanwhile, Malaysia's central bank is expected to keep interest rates unchanged at its meeting on Thursday.

HIGHLIGHTS:

China, U.S. to hold ice-breaker trade talks in Geneva on Saturday

Indonesia central bank seeks balance between growth and price stability