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By Sruthi Narasimha Chari

May 29 (Reuters) - Equities in emerging Asia rallied on Friday, powered by AI-related stocks, while regional currencies stayed under pressure as investors awaited clarity over a potential Strait of Hormuz agreement and an extension of U.S.-Iran ceasefire.

The MSCI index of EM Asia equities .MIMS00000PUS climbed about 2%, recovering from steep losses in the previous session to touch an all-time high. The rally was driven largely by technology and AI-linked stocks in South Korea and Taiwan, which togther account for more than half of the index.

South Korea's KOSPI index .KS11 climbed nearly 3%, edging closer to record levels, while the won KRW=KFTC weakened to 1,505 per dollar in what analysts described a typical "risk-on" hesitation phase for EM currencies.

Taiwan's benchmark stock index .TWII also rose about 3%, hitting a lifetime high as foreign investors poured money into the island's technology sector.

Chipmaking giant TSMC 2330.TW, which constitutes about 42% of the benchmark index, jumped 3.5% to a record high. Korean chipmakers Samsung Electronics 005930.KS and SK Hynix 000660.KS advanced 6.5% and 4%, respectively.

"Asian EMs (emerging markets) are caught between strong structural AI optimism and shorter-term macro uncertainty," said Song Zhe, a senior investment specialist with BNP Paribas Asset Management.

"Taiwan and Korea continue to benefit from AI-related flows, while ASEAN and more domestic-demand-driven markets remain more sensitive to rates, FX and energy concerns."

Oil-importing Asian economies remain vulnerable to prolonged high oil prices, which are widening current-account deficits, driving capital outflows, and pressuring local currencies.

Investor caution persisted despite reports that the United States and Iran had reached an agreement to extend the ceasefire and ease shipping restrictions through the vital Strait of Hormuz.

The dollar index =USD strengthened during Asian trading on Friday but was still on track for a weekly decline as hopes for a peace deal, pending approval from U.S. President Donald Trump, limited gains in the greenback.

Regional currencies nevertheless weakened, with the South Korean won down 0.7%, while the Philippine peso PHP= and the Singaporean dollar SGD= posted modest declines.

Indonesia's rupiah IDR= hit another record low of 17,882 a dollar, pressured by capital outflows on concerns over a range of domestic issues including equity market governance and commodity export controls.

"For further rally in Asian FXs, we do need to see more commitment from both the U.S. and Iran to reopen the Strait of Hormuz and much more progress on the peace deal to end the war, which I still hope to see within Q2 2026," said Krung Thai Bank strategist Poon Panichpibool.

Elsewhere in Southeast Asia, the Philippines stock market .PSI fell 1.3% while Singapore's FTSE Straits Times index .STI rose nearly 1%.

HIGHLIGHTS:

** Yield on Indonesia's 10-year bonds ID10YT=RR at 6.709%

** Japan's Nikkei climbs toward record high on Mideast, AI optimism

** Japan finance minister says decisive action possible on currency volatility

Asia stock indexes and currencies at 0426 GMT
COUNTRY	FX RIC	FX DAILY %	FX YTD %	INDEX	STOCKS DAILY %	STOCKS YTD %
Japan	JPY=	-0.06	-1.68	.N225	2.5	27.9
China	CNY=CFXS	+0.07	+3.21	.SSEC	-0.37	2.89
India	INR=IN	+0.11	-5.98	.NSEI	0.01	-8.50
Indonesia	IDR=	-0.60	-6.78	.JKSE	1.45	-28.07
Malaysia	MYR=	+0.30	+2.35	.KLSE	0.33	0.61
Philippines	PHP=	-0.10	-4.43	.PSI	-0.93	-4.09
S.Korea	KRW=KFTC	-0.57	-4.24	.KS11	2.56	99.20
Singapore	SGD=	-0.13	+0.66	.STI	0.92	8.37
Taiwan	TWD=TP	-0.01	+0.02	.TWII	2.88	55.00
Thailand	THB=TH	+0.06	-3.42	.SETI	0.54	25.22