Updates for afternoon trade

By Sruthi Narasimha Chari

May 28 (Reuters) - Asian emerging market stocks retreated from record highs Thursday as U.S. and Iranian air strikes intensified fears of escalating conflict and oil flow disruptions through the Strait of Hormuz.

The MSCI index of EM Asia equities .MIMS00000PUS dropped more than 2% in its worst session in more than a week, as AI-linked stocks in South Korea and Taiwan fell from recent highs.

Singapore's FTSE Straits Times index .STI fell about 0.7%, while stocks in Thailand .SETI and the Philippines .PSI shed between 1% and 1.8%. China's blue-chip CSI300 Index .CSI300 was flat.

"Markets had moved too fast, pricing geopolitical optimism. Now investors are partially unwinding those trades while waiting for actual diplomatic progress instead of speculative headlines," said Fakhrul Fulvian, chief economist at Trimegah Sekuritas Indonesia.

Renewed air strikes by the U.S. and Iran sent oil prices surging again, underscoring the fragility of the ceasefire between Washington and Tehran and dimming hopes for a peace deal.

The oil supply disruption due to the closure of the Strait of Hormuz has ignited inflation fears in countries dependent on oil imports, straining their current accounts and forcing a hawkish tilt in central banks across developing economies to stabilise their currencies.

Meanwhile, South Korea's KOSPI index .KS11 fell as much as 4% from its record peak, although it recouped most losses to end the day 0.5% lower. The won KRW=KFTC eased around 0.2% after the Bank of Korea held interest rates as expected, and signalled a hawkish tilt.

Taiwan's benchmark stock index .TWII, another tech-heavy gauge, scaled a lifetime high during the session but reversed course to end the day 1.4% in the red, as the flare-up of attacks in the Middle East soured risk appetite.

The pullback followed a 10.6% rally over the previous five sessions, fuelled largely by strong AI-related inflows.

Additionally, Bloomberg reported that Taiwan Stock Exchange is considering extending trading hours to capitalize on the AI-driven rally and boost emerging market inflows.

"Investors are currently caught between improving AI-driven optimism and lingering uncertainty surrounding global macro and geopolitical conditions," Fulvian said.

Asian currencies faced pressure as the dollar index hit a one-week high, driven by fading hopes of a quick conflict resolution, ahead of the Fed's preferred inflation data release.USD/

The Philippine peso PHP= slipped 0.4% to 61.61 per dollar, not far from its all-time low of 61.753, while the Thai baht THB=TH and the Malaysian ringgit MYR= also edged down.

Markets in Indonesia and India were closed for a public holiday.

HIGHLIGHTS:

** Yuan slips as US-Iran tensions cloud outlook for peace deal

** Japan's Nikkei struggles for direction as tech valuations, Iran conflict weigh

** Any conflict over Taiwan would risk U.S.-China nuclear escalation, study finds

** Rupiah bears most entrenched since 2022 as Asia FX split widens

Asia stock indexes and currencies at 0728 GMT
COUNTRY	FX RIC	FX DAILY %	FX YTD %	INDEX	STOCKS DAILY %	STOCKS YTD %
Japan	JPY=	+0.02	-1.77	.N225	-0.5	24.8
China	CNY=CFXS	-0.05	+3.02	.SSEC	0.12	3.27
India	INR=IN	-	-6.08	.NSEI	-	-8.51
Indonesia	IDR=	-	-6.22	.JKSE	-	-29.11
Malaysia	MYR=	-0.40	+2.01	.KLSE	-0.17	0.95
Philippines	PHP=	-0.40	-4.56	.PSI	-1.72	-3.17
S.Korea	KRW=KFTC	-0.31	-4.29	.KS11	-3.58	88.26
Singapore	SGD=	-0.14	+0.52	.STI	-0.66	7.52
Taiwan	TWD=TP	+0.04	+0.10	.TWII	-1.40	50.66
Thailand	THB=TH	-0.34	-3.84	.SETI	-0.74	23.79