Asian stocks rally to record highs on Fed rate-cut hopes

• Taiwan, Korea, Japan stocks hit record highs
• Fed cut bets fuel EM rally, tech leads the charge
• Taiwan outperforms; Indonesia bond spread widens

By Roushni Nair

Sept 11 (Reuters) - Asian equities surged on Thursday, with benchmark indexes in Japan, Taiwan and South Korea hitting record highs, underscoring strong investor optimism ahead of a widely expected rate cut by the U.S. Federal Reserve next week.

Taiwan's benchmark index .TWII rose 1.4% to a record 25,541 points, driven by a 2.5% jump in chipmaker TSMC 2330.TW. South Korea's Kospi .KS11 also hit a fresh peak, gaining nearly 1% earlier in the session.

Both indexes marked record levels for a second consecutive day, with South Korea on track for an eighth session of gains and Taiwan rallying for the seventh.

Japan's Nikkei .N225 climbed to an all-time high of 44,251.65 points, echoing an overnight rally in Wall Street on easing bets and encouraging inflation signals. .N

Singapore's STI .STI benchmark index was flat after hitting record levels in the previous session, while equities in Jakarta .JKSE, Bangkok .SETI, and Manila .PSI edged higher.

Investor sentiment was buoyed by a surprise drop in U.S. producer prices, reinforcing expectations of a Fed rate cut next week. Traders are now pricing in a 92% chance of a 25-basis-point cut, with an 8% probability of a larger 50 bps move, according to CME Group's FedWatch tool. MKTS/GLOB

Traders now await the U.S. consumer price data, due later in the day, to firm up their rate-cut expectations.

Lower U.S. rates typically weaken the dollar and reduce global financing costs, prompting capital flows into higher-yielding emerging markets. This dynamic supports EM currencies, bonds, and equities, particularly in regions with strong tech exposure and trade surpluses.

Tech sentiment received an additional lift from Oracle Corp ORCL.N, whose upbeat cloud outlook added momentum to the sector, analysts at Bell Potter Research noted.

The U.S. dollar index .DXY was largely steady after two sessions of gains, last up 0.05%. Most Asian currencies were subdued, with the Malaysian ringgit MYR=, the Philippine peso PHP=, and Thai baht THB=TH each slipping 0.2%. USD/

The Taiwan dollar TWD=TP held firm and remains the region's top-performing currency this year, up more than 8%.

Analysts at Bank of America said that the currency's rally stalled in July and August amid equity outflows, but with Fed rate cuts largely priced in, Taiwan's record trade surplus and renewed equity inflows could fuel a second leg of gains.

In Indonesia, markets stabilised after the abrupt dismissal of Finance Minister Sri Mulyani Indrawati earlier this week triggered a selloff in long-tenor sovereign bonds.

The country may revise its $236 billion budget proposal for 2026, newly appointed Finance Minister Purbaya Yudhi Sadewa said late on Wednesday, just days after Indrawati's departure.

The spread between Indonesia's one-year and 10-year bonds widened to over 120 bps this month, the most since January 2023. This reflects investor concerns over fiscal discipline and long-term stability.Malaysia's July industrial production up 4.2% year-on-year