EMERGING MARKETS-Asian currencies retreat on Fed's measured approach; stocks steady

By Sameer Manekar

Sept 18 (Reuters) - Asian currencies retreated against a buoyant U.S dollar on Thursday after the Federal Reserve delivered a widely anticipated 25-basis-point interest rate cut but signalled a more calibrated approach to further policy easing.

Emerging market stocks were steady in the early hours, taking a breather from a short but potent rally that sent them to record or multi-year peaks in the run-up to the Fed policy verdict and amid a dovish tilt at regional central banks.

The MSCI index of EM Asian equities .MIMS00000PUS climbed for the tenth straight session to its highest level since June 2021, largely driven by stocks in Taiwan .TWII and South Korea .KS11, each up around 1%.

Indonesia's benchmark gauge .JKSE opened 0.5% higher at a lifetime high but erased most of those gains to trade flat by 0335 GMT. The rupiah IDR= weakened to a seven-session low of 16,475 per U.S. dollar.

Bank Indonesia (BI) surprised markets with a 25bp rate cut on Wednesday, prioritising growth, with Southeast Asia's largest economy facing social unrest and investor concerns over fiscal discipline after the abrupt sacking of a reputed finance minister.

Josua Pardede, chief economist at local lender Bank Permata, said BI still has room for more rate cuts through 2025 and into 2026. However, "any adjustments must be carried out cautiously given the prevailing uncertainties surrounding the economic and political landscape".

A recent government–central bank "burden-sharing" collaboration has heightened concerns about BI's independence and the risk of fiscal slippage, "which could trigger capital outflows and pressure the rupiah", Pardede said.

EM currencies across the board were on the back foot against the dollar after the Fed, following its policy decision, indicated that rate cuts for the rest of the year would come at a steady pace, tempering expectations of more aggressive easing.

The MSCI gauge of global EM units .MIEM00000CUS slipped from a 10-week high.

In Asia, the Philippine peso PHP= slipped 0.7%, its steepest intraday drop in five weeks, while South Korea’s won KRW= fell for a second straight session. Currencies in Thailand THB=TH, Singapore SGD=, Malaysia MYR= and Taiwan TWD=TP also lost ground.

The dollar index =USD rebounded sharply after the Fed decision and was last steady at 97.027 against a basket of major currencies.

However, analysts remain broadly bearish on the world's reserve currency in the near term, which they project will benefit Asian currencies and spur capital flows into high-yielding emerging market assets.

The key takeaway was that this was a slightly hawkish leaning policy decision, in the broader context of a rates market, which has already priced quite a lot of rate cuts for 2026, said Michael Wan, senior currency analyst at MUFG.

"While in the very near-term this will also weigh on Asian currencies, we continue to forecast the dollar to weaken moving forward, and as such, think selling the dollar on rallies and buying some (not all) Asian FX on weakness makes sense."

Elsewhere in Southeast Asia, Malaysia's equity benchmark .KLSE fell 0.8% from an eight-month high touched the previous day.

HIGHLIGHTS:
** Yield on Indonesia's 10-year government bonds ID10YT=RR slightly lower at 6.333%
** Japan's Nikkei .N225 up 1%; Bank of Japan set to keep interest rate unchanged on Friday - Reuters poll
** Thailand's strong baht threatens exports, tourism amid global headwinds
** Thai police fire tear gas at Cambodian protesters at a disputed border village