By Sruthi Narasimha Chari

May 28 (Reuters) - Emerging market stocks in Asia came off their record highs on Thursday as new air strikes by the U.S. and Iran stoked fears of an escalation in their conflict and a prolonged disruption to oil flows through the Strait of Hormuz.

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

Singapore's FTSE Straits Times index .STI fell about 1% to a seven-session low, while stocks in Thailand .SETI and the Philippines .PSI shed between 1% and 1.8%. China's blue-chip CSI300 Index .CSI300 slipped 0.6% by the lunch break.

"In many ways, 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 breakthrough peace deal between the two countries.

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.

In East Asia, South Korea's high-flying KOSPI index .KS11 fell more than 3% from its all-time peak, while its currency, the won KRW=KFTC, weakened 0.7% after the Bank of Korea held rates, as expected.

Taiwan's benchmark stock index .TWII, another tech-heavy gauge, scaled a fresh lifetime high during the session but reversed course to fall 2% as the flare-up of attacks in the Middle East soured risk appetite.

The pullback followed a 10% rally over the previous five sessions, fuelled largely by strong AI-related inflows.

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

Asian currencies were under pressure as the dollar index =USD rose to a one-week high on dimming hopes of a swift resolution to the conflict and ahead of the release of the Fed's preferred inflation gauge later today. USD/

The Philippine peso PHP= slipped 0.5% to 61.68 per dollar, not far from its all-time low of 61.753, while the Thai baht THB=TH and the Malaysian ringgit MYR= dipped to a six-session low.

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

Asia stock indexes and currencies at 0415 GMT
COUNTRY	FX RIC	FX DAILY %	FX YTD %	INDEX	STOCKS DAILY %	STOCKS YTD %
Japan	JPY=	+0.00	-1.79	.N225	1.24	23.8
China	CNY=CFXS	-0.08	+3.00	.SSEC	-0.14	3.00
India	INR=IN	-	-6.08	.NSEI	-	-8.51
Indonesia	IDR=	-	-6.22	.JKSE	-	-29.11
Malaysia	MYR=	-0.45	+1.96	.KLSE	-0.18	0.95
Philippines	PHP=	-0.46	-4.62	.PSI	-1.66	-3.11
S.Korea	KRW=KFTC	-0.62	-4.59	.KS11	-4.28	86.90
Singapore	SGD=	-0.24	+0.42	.STI	-0.75	7.42
Taiwan	TWD=TP	+0.05	+0.11	.TWII	-1.05	51.19
Thailand	THB=TH	-0.37	-3.87	.SETI	-0.97	23.50