EMERGING MARKETS-Asian stocks edge higher in holiday-thinned trading

By Sneha Kumar

April 3 (Reuters) - South Korean equities led emerging Asian stocks higher on Friday, with muted trading volumes across major markets due to public holidays, while investors kept a close eye on developments in the Middle East conflict.

The MSCI gauge of EM Asia equities .MIMS00000PUS rose about 0.7%, though heading for a fifth straight week of declines.

South Korea's KOSPI index .KS11 jumped nearly 3% on Friday, recovering partly from the more than 4% drop in the previous session.

Markets had a nervous week, rattled further on Wednesday when U.S. President Donald Trump threatened more attacks on Iran and offered no hint of when the conflict might end.

On Thursday, he reiterated his threats against Iran's infrastructure, although markets took some relief overnight on news Iran was drafting a protocol with Oman to allow ships through the Strait of Hormuz. About a fifth of the world's oil trade normally passes through the narrow channel.

"I think that provides some sparky sentiment to the market, especially for the markets that's still open today," said Poon Panichpibool, a market strategist at Krung Thai Bank.

Further lifting spirits, Britain held talks with dozens of countries to explore ways to reopen the strait although the meeting ended without any firm agreement, according to one official.

Back in Asia, shares in Malaysia .KLSE added 0.1%, but eyed a second successive week in red.

Meanwhile, Thailand's SET Index .SETI reversed early gains to dip 0.3% and the baht THB=TH appreciated 0.2%. Late on Thursday, the country's central bank chief said that no major policy shake-up was needed for now, even as rising oil prices stoke inflation fears.

In February, the Bank of Thailand unexpectedly cut interest rates to 1.00%, the lowest in more than three years, to support Southeast Asia's second-largest economy.

Against a steady U.S. dollar index =USD, the ringgit MYR= firmed to 4.032, while the South Korean won KRW=KFTC kept its four-day rally alive, poised for a 0.2% weekly rise — its first since late February.

Under their base case oil price assumption - for crude oil to rise further this month before easing in May and June - the won, baht, Philippine peso and ringgit are likely to depreciate further and see higher volatility in April, MUFG analysts said in a note.

The currencies could partially recover in the remainder of Q2 as oil prices decline, the note said.

They added that the ringgit was likely to be an outperformer in Asia in the medium term, however, benefiting from strong investment momentum, resilient domestic demand, and the AI‑driven tech upcycle once global risks ease.

The Malaysian ringgit has been the standout in Southeast Asia, quietly building a 0.6% gain this year while its regional peers have struggled.

Financial markets in Indonesia, Singapore, the Philippines and India were closed for the Good Friday holiday.

Taiwan markets were closed for Children's Day.

HIGHLIGHTS:

Indonesia says stock market reform drive completed after February's selloffs

Iran to allow safe passage of Philippine ships, fuel supply through Strait of Hormuz, Manila says

South Korea, France to upgrade ties as Macron trip overshadowed by Middle East crisis