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By Roshan Thomas

July 2 (Reuters) - AI-heavy equity markets in South Korea and Taiwan retreated on Thursday, with the former dropping as much as 7% as investors rotated out of chipmakers on concerns about excess capacity after a strong quarter.

South Korea's KOSPI .KS11, home to many companies tied to the AI infrastructure buildout, tumbled as much as 7% to trigger a "sidecar" trading curb before recovering to a drop of about 5%. Chipmakers Samsung Electronics 005930.KS and SK Hynix 000660.KS lost 6.4% and 7.8% respectively.

Investor sentiment towards AI-related stocks in Asia soured after media reports said Meta Platforms META.O had plans to sell access to its AI computing power and models, fuelling concerns that the company may have overbuilt capacity.

Sentiment was also dented by media reports that Apple was considering sourcing memory chips from two Chinese manufacturers, a move that could challenge South Korean chipmakers.

Taiwan stocks .TWII also dropped more than 2%, dragged lower by chipmaker TSMC 2330.TW, which fell 1.8%. Later the index was down less than 1%.

Investors welcomed signs of progress in indirect talks between the U.S. and Iran after Qatar said negotiations centred on the Strait of Hormuz had advanced, calming fears of disruptions to the vital oil shipping route.

Markets also took heart from comments from Federal Reserve Chair Kevin Warsh and other policymakers pointing to a more even inflation outlook.

Focus now shifts to U.S. non-farm payrolls data as investors seek fresh clues on the interest-rate outlook after Warsh damped expectations of a July hike. The data is due out on Thursday due to a U.S. holiday on Friday.

Moves in regional currencies were muted against a broadly unchanged dollar index =USD. The rupiah IDR= remained pinned near the 18,000-per-dollar level for a second consecutive session, while stocks .JKSE gained 1.6%.

"Sentiments also benefited from the government's moves to improve banking system liquidity to encourage credit growth and a decision to scale back allocations towards the flagship meals programme," DBS economist Radhika Rao said.

Philippine equities .PSI advanced 1.2%, while the peso PHP= was flat. Malaysia stocks .KLSE added 0.4%, while the ringgit MYR= advanced 0.2%.

In Tokyo, Japanese officials are abandoning their habit of telegraphing intervention risks, Reuters reported, in favour of a more targeted approach designed to squeeze speculators and make bets against the yen more costly.

The yen JPY= was last trading near 162.42 per U.S. dollar.

HIGHLIGHTS:

** Indonesia's 1-year benchmark yield ID1YT=RR at 7.933%

** Vietnam central bank says global risks complicate policymaking

** South Korea's inflation rate quickens to 2-1/2-year high

Asia stock indexes and currencies at 0412 GMT
COUNTRY	FX RIC	FX DAILY%	FX YTD%	INDEX	STOCKS DAILY%	STOCKS YTD%
Japan	JPY=	+0.10	-3.54	.N225	-1.43	37.99
China	CNY=CFXS	+0.05	+2.99	.SSEC	-0.90	2.68
India	INR=IN	+0.30	-5.36	.NSEI	0.44	-7.73
Indonesia	IDR=	-0.31	-7.31	.JKSE	1.65	-33.05
Malaysia	MYR=	+0.22	-0.66	.KLSE	0.37	-1.02
Philippines	PHP=	+0.04	-4.51	.PSI	1.21	1.48
S.Korea	KRW=KFTC	-0.11	-7.30	.KS11	-4.83	87.52
Singapore	SGD=	+0.07	-0.71	.STI	0.38	11.52
Taiwan	TWD=TP	+0.05	-1.32	.TWII	-0.60	61.37
Thailand	THB=TH	+0.15	-5.53	.SETI	0.45	26.65