EMERGING MARKETS-Asian stocks slide as risk-off mood deepens over Middle East conflict

By Shivangi Lahiri

March 27 (Reuters) - Most emerging Asian equities declined on Friday, with South Korea leading the selloff, as oil prices stayed above $100-a-barrel level despite U.S. President Donald Trump's decision to pause attacks on Iran's energy infrastructure for 10 days.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 1%, and was set for a weekly drop of 2.6%. Its broader EM Asia index .MIMS00000PUS declined 1.1%.

Oil prices dipped in early trade after Trump said talks with Iran to end the war were going "very well", but hovered around $107 per barrel. O/R

With the Middle East conflict set to enter its second month next week, analysts said emerging Asia faces an immediate hit from fuel inflation, with the more persistent risk coming from spillover into transport, food, FX and inflation expectations, particularly in energy-importing economies.

"After a couple of headline-driven weeks, markets are refocusing on the magnitude of disruption to energy markets and global supply chains if the Strait of Hormuz remains to be closed, and that should keep EM Asia selective rather than indiscriminately weak," said Song Zhe, senior Asia and global EM equities investment specialist at BNP Paribas Asset Management.

Equities in South Korea .KS11 fell as much as 4.4% and were set to end the week 7.3% lower. Meanwhile, benchmark gauges in Taiwan .TWII and Indonesia .JKSE declined around 1.1% each.

On the other hand, shares in Singapore .STI and Malaysia .KLSE edged higher, while Thai stocks .SETI gained 0.5%.

Regional currencies were mostly under pressure, with the Philippine peso PHP= sinking to a record low, while the Indonesian rupiah IDR= was last quoted at 16,950 a dollar.

Christopher Wong, a currency strategist at OCBC, noted that although occasional relief rallies may emerge on de-escalation headlines, the lack of a definitive resolution is likely to keep most Asian currencies, excluding Japan, under pressure, with policy support serving only to soften, not reverse, the downside.

Bangko Sentral ng Pilipinas, in a surprise off-cycle meeting, on Thursday decided to keep its policy rate at 4.25%, adding that it will act as needed to maintain price stability and address likely second-round effects. The central bank was not scheduled to review interest rates until April 23.

Elsewhere, the Taiwan dollar TWD=TP and the South Korean won KRW=KFTC edged higher, while the Malaysian ringgit MYR= slipped to 4.005 against the dollar.

HIGHLIGHTS:

ASEAN summit to go ahead in May, but shortened to 'bare bones' programme due to the Middle East conflict

Chinese banks outperform after news of potential change in shareholding rule

Japan's Nikkei poised for fourth weekly loss as Mideast war spurs risk-off mood