EMERGING MARKETS-South Korean shares rise; investors stay cautious over Middle East conflict

By Sneha Kumar

April 3 (Reuters) - South Korean shares rose on Friday, after sharp losses in the previous session, although thin holiday trading kept gains modest as investors tracked the latest developments in the Middle East.

South Korea's KOSPI index .KS11 jumped 2.7%, trimming earlier gains, after sliding 4.5% 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.

Investors did however get 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 still open today," said Poon Panichpibool, a market strategist at Krung Thai Bank.

In a further lift for sentiment, Britain held talks with dozens of countries to explore ways to reopen the strait though the meeting ended without any firm agreement, according to one official.

Back in Asia, Thailand's SET Index .SETI reversed early gains to dip 0.4% and the baht THB=TH appreciated 0.5% to 32.59 against the U.S. dollar.

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 4.027, while the South Korean won KRW=KFTC kept its four-day rally alive, poised for a 0.3% 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.

The analysts added that the ringgit was likely to be an outperformer in Asia in the medium term, 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, building a 0.7% gain this year against the dollar while 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:

South Korea vows stern response to speculative trading in forex market

Thai regulator tightens market oversight to curb 'grey capital'

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