EMERGING MARKETS-S. Korean won, rupiah advance; other Asia FX range-bound on Iran deal uncertainty

By Shruti Agarwal

Sept 23 (Reuters) - The South Korean won extended its rally into a third session and the Indonesian rupiah firmed ahead of a central bank decision on Wednesday, standing out among mostly subdued Asian currencies as markets weighed uncertain prospects for US-Iran peace talks.

The Korean won was among the few bright spots in the region, adding as much as 50 basis points, putting it on track to recover most of last week's losses.

The won has advanced more than 6% so far this year, helped by a widening current account surplus and portfolio inflows chasing the AI trade. It has outpaced most emerging Asian currencies, as unabated global demand for memory chips and semiconductors has kept export revenues flowing home.

South Korea enjoys a structural currency support story that peers simply don't, said Inki Cho, financial market strategist at online trading platform Exness.

The Indonesian rupiah advanced 0.4% to 17,788, ahead of Bank Indonesia's monetary policy decision later in the day, where it is widely expected to hold its key interest rate at 5.75%. Jakarta stocks added 0.6%.

Indonesia's central bank raised rates by 100 basis points between May and June to defend the then-plummeting rupiah, with recent stability and on-target inflation providing policymakers some room to pause. Analysts still expect another quarter-point hike later this year.

MSCI's gauge of emerging market currencies .MIEM00000CUS was nearly flat, as prospects of interest rate hikes in the near term strengthened the dollar and kept local units under the pump. USD/

Currencies of net oil importers like Philippines and India held steady despite a gradual decline in oil prices since Tuesday after sources told Reuters that Saudi Arabia had restarted operations at its East-West Pipeline. O/R

"Markets are waiting for a clearer directional signal on whether the US-Iran situation produces a durable de-escalation," Cho said.

US President Donald Trump suggested an agreement could come soon amid the diplomatic efforts at the UN, but also warned that he could "annihilate" Iran if there is no deal to end the war.

Thailand's baht weakened 0.3% against the dollar after its cabinet on Tuesday approved $1.29 billion in spending to extend a consumer subsidy scheme by two months.

The subsidy was aimed at easing living costs as Southeast Asia's second-largest economy struggles to keep rising energy costs from feeding through to households already pressured by elevated debt.

On the equities front, MSCI's index for EM Asia stocks .MIMS00000PUS rose 0.4%.

Taiwanese stocks .TWII rose 0.8%, extending their rally after the benchmark touched an intraday record high in the previous session, with TSMC 2330.TW gaining 1.2%.

Stocks in South Korea .KS11 were up around 0.4%, paring gains after rising nearly 2% earlier in the session.

The gains came amid renewed optimism about chip demand, as strong interest in Meta's new AI agent buoyed global AI stocks, after warnings from the industry about a coordinated pacing in AI development led to a selloff early last week.

Chipmakers SK Hynix 000660.KS and Samsung Electronics 005930.KS, which account for about half of the benchmark's value, gained 0.6% and 2.5%, respectively.

HIGHLIGHTS:

** Vietnam raises $1 billion in government bond auction, highest volume this year

** Singapore's core inflation rate rises to 2.2% in August, above forecast

** EU reaches initial free trade deal with Philippines in pivot to Asia