GLOBAL MARKETS-Asia stocks turn green as AI cheer trumps Iran, inflation gloom

By Gregor Stuart Hunter

SINGAPORE, May 13 (Reuters) - Asian stocks found their footing after an initial selloff on Wednesday, helped by a turnaround in Korean shares as revived AI optimism dwarfed concerns about stalled talks between Washington and Tehran and hotter-than-expected U.S. inflation.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.3% after rebounding from an earlier decline of as much as 1%. Japan's Nikkei 225 .N225 rose 0.8%, while S&P 500 e-mini futures EScv1 tacked on 0.2%.

Korean shares .KS11 fell as much as 3.2% on news Samsung Electronics had failed to reach a pay deal with its union before rebounding 2.6% to a record close on reports the government was seeking to manage the situation.

The Korean market has been on a tear in recent weeks, breaching records regularly on an AI-led rally that some traders say was ripe for a pullback.

"Robust AI-led exports by South Korea – and to a lesser extent, Japan, Singapore and Malaysia – are buffering the energy price shock," analysts from Nomura wrote in a research report.

The conflict in the Middle East remained in a stalemate, as U.S. President Donald Trump said on Tuesday he does not think he will need China's help to end the war with Iran, ahead of his meeting with President Xi Jinping later this week.

"The U.S.-China summit could trigger moderate index upside if the truce extends," Morgan Stanley said in a research note, lifting its price targets on several Chinese benchmarks. It noted improved earnings, growing supply chain dominance and a stronger yuan.

The bank also upgraded its recommendation on developed market equities to overweight. "Uncertainties driven by the conflict in the Middle East drive a wider-than-average range of return outcomes, but the micro and macro fundamentals are largely supportive," the bank added. "AI and capex related to AI will remain pertinent across asset classes and regions."

Other investors expressed scepticism that Trump and Xi's meeting would lead to significantly improved relations.

"We’ve seen this movie before, and we know it doesn’t end with a breakthrough agreement that resets the U.S.-China relationship," said Phillip Wool, chief research officer and head of portfolio management at Rayliant Investment Research.

"That creates a pretty low bar for success: As long as Trump and Xi can get along and the trade detente continues, that should be enough to count this meeting as a win for both sides."

Brent crude LCOc1 was down 1.4% at $106.32, snapping a three-day rally. Oil prices have held at or above $100 a barrel since late February, when U.S. and Israeli strikes on Iran and Tehran's effective closure of the Strait of Hormuz rattled supply.

In Seoul, Samsung Electronics 005930.KS shares plunged as much as 6.1% after the electronics behemoth failed to reach a pay deal with its South Korean labour union on Wednesday, setting the stage for more than 50,000 workers to go ahead with a full strike. However, the stock later rose 1.8% after South Korean Prime Minister Kim Min-seok said the government would support talks to prevent a strike "under any circumstances," Yonhap News Agency reported.

Stocks on Wall Street fell on Tuesday, with the S&P 500 .SPX 0.2% lower and the Nasdaq Composite .IXIC down 0.7% after U.S. consumer inflation increased by the most in three years in April, raising the risk the Federal Reserve will be forced to raise rates earlier than expected.

Markets have largely priced out any chance of a rate cut from the Fed this year, while expectations for a hike of at least 25 basis points at the December meeting have risen to over 35% from below 22% earlier in the week, according to CME's FedWatch Tool.

The yield on the U.S. 10-year Treasury bond was down 1.0 basis points at 4.459%, edging back after hitting the highest level since July.

The U.S. dollar index =USD, which measures the greenback's strength against a basket of six major peers, held steady at 98.369, on track for its third consecutive day of gains.

Against the yen JPY=, the dollar traded 0.1% firmer at 157.73 after the Japanese currency briefly spiked Tuesday on "rate check" speculation, often seen as a precursor to intervention.

Markets are on edge for any action by Tokyo after sources said authorities had intervened in the past two weeks to arrest the yen's decline.

In early European trades, pan-region futures STXEc1 were up 0.9%, German DAX futures FDXc1 rose 0.8% and FTSE futures FFIc1 gained 0.6%.

Elsewhere, gold XAU= was down 0.1% at $4,708.24, while bitcoin BTC= was up 0.5% at $81,110.13 and ether ETH= nudged up 0.8% to $2,301.66.