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By Sneha Kumar and Sruthi Narasimha Chari

May 15 (Reuters) - Emerging Asian markets posted sharp declines on Friday as surging oil prices and sluggish U.S.-Iran peace negotiations compounded fears surrounding inflation and economic stability.

MSCI's emerging Asia equities gauge .MIMS00000PUS fell nearly 2%, dragged by a more than 6% slump in South Korea's KOSPI .KS11.

The benchmark briefly crossed the 8,000 mark before reversing sharply on losses in major chipmakers, with Samsung Electronics 005930.KS down 8.6% and SK Hynix 000660.KS falling 7.7%.

Despite limited progress in U.S.-Iran talks, hopes of a truce have lifted the regional benchmark nearly 20% since late March, when reports of a potential ceasefire first surfaced.

"We see today's pressure more as markets digesting the strong recovery rally since April, rather than a decisive shift into broad risk-off," said Song Zhe, senior Asia and global EM equities investment specialist at BNP Paribas Asset Management.

Investor focus remained on Beijing, where U.S. President Donald Trump concluded his two-day state visit on Friday. Trump and China's Xi Jinping have agreed that they oppose Iran acquiring nuclear weapons and "want the straits open".

"There's definitely some unease about the stalled peace talks between the US and Iran, especially concerning the impact on inflation and interest rates via higher energy prices," said Kyle Rodda, senior financial market analyst at Capital.com.

Oil prices continued to rise on Friday, heading for a weekly gain of more than 5% after President Donald Trump said China wants to buy oil from the United States. Meanwhile, traffic through the critical Strait of Hormuz remained constrained. O/R

Meanwhile, Malaysia's economy expanded faster than projected in the first quarter, supported by resilient domestic demand that helped cushion shocks stemming from the Middle East conflict.

Malaysia's central bank slightly raised its 2026 growth forecast, although it expects headline inflation to accelerate this year.

Malaysian shares .KLSE and the ringgit MYR= fell around 0.4% each. The currency stands out as one of the best performers so far this year, with a year-to-date gain of nearly 3%, including a weekly advance of 0.7%.

Bangkok's equity benchmark .SETI eased 1.1% after climbing 3.7% across the last two sessions, gains spurred by Thailand's finance minister's comments forecasting economic growth of over 3% over the next one to two years.

Philippine equities .PSI slipped 0.6%, while Taiwan shares .TWII fell 1.4% after briefly touching a record level, dragged lower by a 0.2% drop in TSMC 2330.TW, the world's top contract chipmaker.

The dollar index USD= was on course for a weekly advance of more than 1%, its best performance since early March, putting pressure on Asian currencies including the Philippine peso PHP= and South Korean won KRW=KFTC. USD/

Both currencies are on course to post weekly losses of around 2% each.

Indonesian markets were closed for a public holiday.

HIGHLIGHTS:

** New Bank of Korea board member says inflation worries are heightening

** Japanese bond yields hit record highs as rate-hike bets firm

** HSBC pauses $4 billion private credit investment after fraud hit, FT reports

Asia stock indexes and currencies at 0729 GMT
COUNTRY	FX RIC	FX DAILY %	FX YTD %	INDEX	STOCKS DAILY %	STOCKS YTD %
Japan	JPY=	-0.02	-1.09	.N225	-1.99	21.96
China	CNY=CFXS	-0.21	+2.73	.SSEC	-1.02	4.20
India	INR=IN	-0.14	-6.28	.NSEI	0.32	-9.05
Indonesia	IDR=	-	-4.52	.JKSE	-	-22.25
Malaysia	MYR=	-0.43	+2.76	.KLSE	-0.42	3.47
Philippines	PHP=	-0.25	-4.67	.PSI	-0.64	-1.26
S.Korea	KRW=KFTC	-0.53	-4.12	.KS11	-6.12	77.81
Singapore	SGD=	-0.18	+0.59	.STI	0.00	7.53
Taiwan	TWD=TP	-0.06	-0.29	.TWII	-1.39	42.15
Thailand	THB=TH	-0.61	-3.41	.SETI	-1.09	20.85