Stocks upbeat on AI optimism as investors gird for Fed, tech earnings

• Japan, S.Korean stocks at record; eyes on earnings from tech giants
• Microsoft, Alphabet, Meta report after the bell
• 25bp Fed cut baked in, focus on end of QT
• Yen strengthens after Bessent urges Tokyo to give BOJ scope to raise rates

By Rae Wee

SINGAPORE, Oct 29 (Reuters) - Asian shares got a lift from Wall Street on Wednesday thanks to a fresh wave of optimism over artificial intelligence, as investors braced for a busy day headlined by the Federal Reserve's decision and earnings from technology heavyweights.

The prospect of lower U.S. rates this week supported bonds, though the dollar trimmed losses as investors weighed how dovish the Fed might sound.

Wall Street closed at record highs on Tuesday after upbeat news from Nvidia NVDA.O and Microsoft MSFT.O, with the former announcing $500 billion in bookings for its AI chips and that it would build seven supercomputers for the U.S. Department of Energy.

Microsoft, meanwhile, reached a deal allowing OpenAI to restructure into a public benefit corporation while giving the software giant a stake of 27% in the ChatGPT maker.

That helped propel stocks in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rising 0.53%, while Japan's Nikkei .N225 jumped more than 2% to hit another record.

South Korea's Kospi .KS11 similarly scaled an all-time high, helped by strong earnings and a bullish outlook from SK Hynix 000660.KS, an Nvidia supplier.

China's CSI300 blue-chip index .CSI300 was up 0.74%.

The "Magnificent Seven" tech titans Microsoft MSFT.O, Alphabet GOOGL.O and Meta META.O are due to report earnings later on Wednesday, where there are lofty expectations for them to deliver strong results that would justify stretched valuations.

"Expectations are sky-high, and the bar for disappointment is high too," said Charu Chanana, chief investment strategist at Saxo.

"Investors want to see not just solid numbers but evidence of sustained AI monetisation and broadening demand beyond the initial boom. That's where the market will judge if this AI boom is becoming a bubble or not."

Nasdaq futures NQc1 were up 0.35% while S&P 500 futures ESc1 gained 0.2%. EUROSTOXX 50 futures STXEc1, meanwhile, fell 0.14%, while FTSE futures FFIc1 were little changed.

Also helping the overall market sentiment were expectations of a further thaw in icy Sino-U.S. trade relations.

U.S. President Donald Trump began the final leg of his Asia trip in South Korea on Wednesday, optimistic about striking a trade war truce with Chinese President Xi Jinping and advancing an unresolved tariff deal with South Korea's Lee Jae Myung.

BETTING ON A DOVISH FED

Earnings aside, key for investors later in the day will be a highly anticipated rate decision from the Fed, where a 25-basis-point cut is almost fully priced in. 0#USDIRPR

Alongside the rate move, markets will be watching whether the central bank could halt its long-running effort to shrink its balance sheet, known as quantitative tightening (QT).

"The end of QT, if announced, would be interpreted as a dovish shift, especially if it comes with hints of maintaining balance-sheet stability," said Saxo's Chanana.

The two-year Treasury yield US2YT=RR held at 3.4980% while the benchmark 10-year yield US10YT=RR stood at 3.9813%, as traders looked to further validation from the Fed on market pricing for a December easing as well.

The dollar meanwhile staged a slight rebound, with the euro EUR= down 0.2% to $1.1630 while sterling GBP= eased 0.23% to $1.3240.

The Aussie dollar AUD= rose 0.21% to $0.6600, after data showed domestic inflation rose by the most in over two years in the September quarter. An unexpectedly large jump in the core inflation rate seemed to rule out any imminent rate cuts from the Reserve Bank of Australia.

In Japan, the yen JPY= was last 0.24% lower at 152.47 per dollar.

It had strengthened earlier in the session after U.S. Treasury Secretary Scott Bessent escalated his warning to Tokyo against keeping the yen too weak through prolonged low borrowing costs.

The Bank of Japan (BOJ) announces its policy decision on Thursday, where expectations are for rates to be kept steady. 0#JPYIRPR

"We expect the BOJ to adopt a moderately hawkish hold, signalling its intention to normalize policy in the coming months and laying the groundwork for a possible rate hike, likely in December or potentially January," said Gregor Hirt, global CIO for multi asset at Allianz Global Investors.

"Governor (Kazuo) Ueda may provide some moderate push-back to mitigate further currency weakening in the absence of immediate policy action."

Elsewhere, oil prices fell as doubts about the effectiveness of new Western sanctions on Russia and a potential OPEC+ output increase put pressure on the market.

Brent crude futures LCOc1 dipped 0.08% to $64.35 a barrel, while U.S. crude CLc1 was down 0.08% at $60.10 per barrel. O/R

Safe-haven gold XAU= traded just shy of $4,000 an ounce, with a pick-up in risk appetite denting demand for the asset and after its recent sharp fall squeezed leveraged money out of a very crowded trade. GOL/

World FX rates YTD http://tmsnrt.rs/2egbfVh