EMERGING MARKETS-Asian stocks waver as Middle East developments send mixed signals

By Sneha Kumar

April 6 (Reuters) - Equities in emerging Asia were mixed in holiday-thinned trading on Monday as investors grappled with a flurry of conflicting headlines around the war in the Middle East that continues to threaten inflation and economic outlooks.

The MSCI gauge of EM Asia equities .MIMS00000PUS edged higher, largely driven by a gain of more than 2% for South Korea's benchmark KOSPI index .KS11. A global EM currencies gauge .MIEM00000CUS was also marginally higher.

Indonesia's rupiah IDR= sank to a new all-time low of 17,045 per U.S. dollar as the currency continued to be battered by investor concerns over the country's fiscal deficit, central bank autonomy and stock market governance.

Investor sentiment continues to be whipsawed by U.S. President Donald Trump's threats to rain "hell" on Tehran if it does not make a deal and reopen the Strait of Hormuz by a Tuesday deadline, even as an Axios report suggested that discussions on terms of a potential 45-day ceasefire were underway.

The report said that the U.S., Iran and a group of regional mediators were negotiating a potential ceasefire, with hopes that it could lead to a permanent end to the conflict.

"I would think that after Trump’s weekend rhetoric, markets seem reluctant to price much more than cautious hope until there is something concrete," said Charu Chanana, chief investment strategist at Saxo in Singapore.

"Investors have seen a lot of headline swings in this conflict and this still looks more like a last-ditch diplomatic effort than a deal. It may cap some of the immediate panic, but it is probably not enough on its own to unwind the broader risk premium."

Indonesia's Jakarta Composite Index .JKSE slipped as much as 1.3% to its lowest level in three weeks and the Philippine stock market .PSI declined 0.9%.

With the Middle East war now six weeks in, Asian investors are turning to this week's inflation numbers to gauge how badly prices have been shaken.

The Philippines releases its March inflation data on Tuesday, Taiwan follows on Wednesday and all eyes will then turn to South Korea on Friday when its central bank announces its policy rate. The statement from the Bank of Korea is expected to capture investor attention.

Among regional currencies, the Philippine peso PHP= fell 0.6%, while the South Korean won KRW=KFTC appreciated to 1,508.7 per U.S. dollar.

South Korea's won remains the worst-performing currency in EM Asia, down 4.6% against the U.S. dollar so far this year, pressured by foreign outflows and the "worst energy security threat" it has faced from the war in the Middle East.

"Looking forward, amid the complications related to the Middle East conflict, factors like Korea’s high external energy dependency (84%) and dependence on the Middle East for it, alongside a potential bigger KOSPI correction, likely will continue to weigh on KRW in April," MUFG analysts said in a note.

Markets in Taiwan, China and Thailand were closed for a holiday on Monday.

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