S.Korea leads Asia shares rebound, but Seoul still set for big weekly drop

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  • Asia shares rebound from Thursday's sell-off
  • Some Asia c.banks can afford to normalise policy faster - strategist
  • South Korea's Dec factory output beats expectations

Jan 28 (Reuters) - South Korea led a rebound in Asia's emerging market shares on Friday, but Seoul stocks were still set to notch their biggest weekly decline since March, 2020 as investors brace for a year of aggressive rate hikes from the U.S. Federal Reserve.

Shares in Seoul (.KS11) rose 1.9% to pare some of the heavy losses recorded over the last few days, but were still on course for a nearly 6% weekly drop.

Equities in Mumbai (.NSEI), Bangkok (.SETI) and Manila (.PSI) traded 0.6% to 1.2% higher.

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"After the aggressive sell-off in Asia yesterday, markets may attempt to recover some losses, coming off positive moves in U.S. futures," said Yeap Jun Rong, Market Strategist at IG, in a note.

Traders in the fed funds futures market moved to price in nearly five rate hikes this year in the wake of Fed Chair Jerome Powell's remarks on Wednesday, starting with the March meeting.

Central banks in Asia have not been pressured to pursue interest rate hikes as aggressively as their peers in Europe and Latin America.

However, the prospect of higher U.S. interest rates has left regional policymakers balancing the need to protect economic recovery while stemming potential outflows that could weaken current account surpluses.

"ASEAN growth catch-up and better readiness to deal with COVID suggests that some central banks in Asia can afford to normalise policy faster," said Christopher Wong, Senior FX Strategist at Maybank.

Earlier this week, Indonesia's central bank governor Perry Warjiyo said that early signs of inflation might be seen at the end of this year, while the Bank of Korea and Monetary Authority of Singapore have already begun monetary policy tightening.

Benchmark 10-year bond yields in Malaysia surged further to scale a 32-month high, while yields in Indonesia were up 3.4 basis points at 6.469%.

Meanwhile, South Korea's factory output outperformed expectations in December, increasing by a seasonally adjusted 4.3% from November and beating a median 1.0% gain tipped in a Reuters survey.

In Malaysia, government data showed that exports in December beat forecasts to rise 29% from a year earlier, while imports for the month grew 24%.

The ringgit was up 0.2%, while shares (.KLSE) gained 0.4%.

Currencies in the region, which have suffered some losses over the course of the week against broad dollar strength, were broadly subdued, trading either side of flat.

The Indonesian rupiah and Chinese yuan both rose 0.2%, while Thailand's baht weakened.

HIGHLIGHTS

** Indian shares (.NSEI) up as much as 1.5%, biggest intraday gain since Jan. 3

** South Korean shares (.KS11) up as much as 2%, on track for best day since Dec. 1, 2021

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Reporting by Harish Sridharan in Bengaluru; Editing by Kenneth Maxwell

Our Standards: The Thomson Reuters Trust Principles.