.

By Sruthi Narasimha Chari

May 29 (Reuters) - AI stocks drove emerging Asian equities higher on Friday while currencies held ground, with investors reluctant to make big moves as they awaited progress on the agreement to extend the U.S.-Iran ceasefire.

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

South Korea's KOSPI index .KS11 climbed nearly 4%, touching record levels, while the won KRW=KFTC weakened to 1,508 per dollar in what analysts described as a typical "risk-on" hesitation phase for EM currencies.

The benchmark has climbed 8% this week and a whopping 28% this month. It has also more than doubled in value over the past five months.

Taiwan's benchmark stock index .TWII rose about 3% on the day to hit a new lifetime high, as foreign investors poured money into the island's technology sector. The gauge ended May about 15% higher, taking its yearly gains to 54%.

Chipmaking giant TSMC 2330.TW, which constitutes about 42% of the benchmark index, jumped 2.6% to a record high on the day.

"We think the AI infrastructure cycle remains structurally supportive for Asian equities over the medium term," Song Zhe, a senior investment specialist with BNP Paribas Asset Management, said.

However, Song struck a cautious note "as the rally since April has been extremely rapid and likely amplified by strong retail participation — a classic 'too far, too fast' dynamic".

"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," Song said.

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 0.9%, while the Philippine peso PHP= and the Singapore dollar SGD= posted modest declines.

Indonesia's rupiah IDR= hit another record low of 17,885 a dollar, pressured by capital outflows on concerns over a range of domestic issues including equity market governance and commodity export controls.

Jakarta stocks .JKSE rose more than 1%, posting their biggest daily gain in two weeks. Despite that, the benchmark has lost more than 10% in May, clocking its fifth straight month of losses.

Elsewhere in Southeast Asia, the Philippines' equity benchmark .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 April oil imports fall nearly 66% y/y as Iran war disrupts supply

** Indonesia government meets with palm oil farmers to address concerns about falling prices

** Global fuel crisis adds urgency to Cambodian push to tap $300 billion energy resources

Asia stock indexes and currencies at 0743 GMT
COUNTRY	FX RIC	FX DAILY %	FX YTD %	INDEX	STOCKS DAILY %	STOCKS YTD %
Japan	JPY=	-0.04	-1.66	.N225	2.53	27.9
China	CNY=CFXS	+0.08	+3.22	.SSEC	-0.73	2.51
India	INR=IN	+0.20	-5.89	.NSEI	-0.34	-8.82
Indonesia	IDR=	-0.48	-6.66	.JKSE	1.32	-28.17
Malaysia	MYR=	+0.25	+2.30	.KLSE	0.28	0.57
Philippines	PHP=	-0.21	-4.54	.PSI	-1.56	-4.69
S.Korea	KRW=KFTC	-0.90	-4.56	.KS11	2.56	99.20
Singapore	SGD=	-0.18	+0.61	.STI	0.95	8.41
Taiwan	TWD=TP	+0.26	+0.30	.TWII	2.51	54.45
Thailand	THB=TH	+0.00	-3.48	.SETI	0.34	24.97