Emerging markets: Shares in Jakarta continue to rise as Asian stocks extend gains as focus turns to US inflation data

JAKARTA, Sept 13 (Reuters): South Korean shares led Asian equities higher on Tuesday as upbeat sentiment prevailed ahead of U.S. inflation data, which could determine the severity and pace of the Federal Reserve's monetary tightening policy.

Seoul's KOSPI index settled 2.7% higher after an extended weekend in its best session since February 2021.

Shares in Mumbai rose 0.7%, while Jakarta and Taipei stocks added between 0.6% and 1%.

"The outperformance in KOSPI is largely due to some catch-up gains... with further gains in Wall Street continuing to provide a positive backdrop for the risk environment in the region," said Yeap Jun Rong, market strategist at IG.

Wall Street extended its winning streak overnight, partly on hopes that the consumer price index data might signal that inflation has peaked.

Interest rate futures imply a 90% chance that the Fed will lift its benchmark interest rate by 75 basis points at next week's policy meeting - a position that is perhaps more vulnerable to a downside CPI surprise than to unexpectedly strong inflation.

On Tuesday, South Korea's won strengthened 0.5% to hit a one-week high. The yuan gained 0.1%, while Malaysia's ringgit dipped to hit yet another 24-year low.

"Asian currencies have generally been following the broad dollar in the last few weeks, and that is likely to continue in any market reaction to the U.S. CPI numbers, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The Japanese yen rose 0.4%, with some investors closing bets on a further slide as risks of an official intervention increase.

"If the yen moves quite sharply in either direction from hereon, the biggest impact will be on the Korean won, but it is important to emphasise that it's only one of several factors that would drive the won," Tan said.

The Indian rupee hit its highest level since early-August after the country on Monday reported that its annual retail inflation rate for August had accelerated to 7%, putting more pressure on the central bank to raise interest rates again later this month.

"It's clear that inflation remains uncomfortably high and the data will do little to ease the concerns of several MPC members who continue to strike a relatively hawkish tone," said Capital Economics' Senior India Economist Shilan Shah. He added that a 50 basis point hike to the repo rate was likely in the next policy announcement, on Sept 30. - Reuters