To The Moon

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By Roushni Nair

March 3 (Reuters) - South Korea bore the brunt of Tuesday's risk sell-off, with the decline in won and local equities weighing on Asian markets as the U.S.–Israeli attack on Iran sent oil prices soaring and sharpened inflation worries for the region's net importers.

The won KRW=KFTC fell as much as 2% to a one-week low of 1,467.80 per U.S. dollar, while Seoul shares .KS11 slipped up to 5.6% and were on course for their worst session in nearly four months.

With markets closed on Monday, South Korea was catching up to the weekend's escalation in the Middle East, with the rout triggering a sidecar - a curb that halts programme trading for five minutes - after KOSPI 200 futures slipped more than 5%.

The U.S. and Israel carried out sweeping strikes on Iran over the weekend, killing Supreme Leader Ayatollah Ali Khamenei and prompting Tehran to retaliate by shutting down the Strait of Hormuz, a vital corridor for about 20% of global oil flows.

The widening Middle East tension lifted oil prices sharply, taking year-to-date gains to roughly 30%, including an almost 10% jump after the weekend attacks. O/R

The dollar index =USD climbed to a six-week high, supported by safe-haven demand and concerns that higher oil-driven inflation could curb the U.S. Federal Reserve's ability to cut rates this year. USD/

Losses were most pronounced in energy-importing currencies, with the baht THB=TH and the Philippine peso PHP= losing 1% and 0.9%, respectively, on Monday, while the ringgit MYR=, Singapore dollar SGD= and yuan CNY=CFXS held steady.

On the day, the baht eased another 0.2% in holiday-thinned markets, the peso shed 0.2% and the Taiwan dollar TWD=TP weakened 0.4%. The Singapore dollar and Indonesian rupiah IDR= were little changed.

Among equities, those in Kuala Lumpur .KLSE and Manila .PSI recouped some of Monday's losses to rise 0.8% and 0.2%, respectively. Singapore shares .STI firmed 0.9% after Monday's steep losses.

Shares in Taipei .TWII and Tokyo .N225 fell more than 2%.

Investors seeking regional diversification may consider Asia ex-Japan equities – particularly Singapore stocks, Afdhal Rahman, Executive Director, Wealth Advisory, OCBC, said.

"The local market is increasingly viewed as a safe haven in the region, buttressed by predictable policymaking, a stable currency and a robust economy," he added.

Rising oil prices are also feeding worries that inflation across Asia could re-accelerate, narrowing the window for regional central banks to ease policy this year.

"Overall, we don't think Asian central banks will hike rates just because of this risk, but it could delay rate cuts for the likes of the Philippines and Indonesia, and further reduce the probabilities of cuts for markets such as India and South Korea," said Michael Wan, senior economist at MUFG.

Key data this week include inflation prints from the Philippines and Thailand on Thursday and South Korea's CPI on Friday. Malaysia's central bank also meets on Thursday and is widely expected to keep rates steady.

HIGHLIGHTS:

** Markets in India and Thailand are closed for a public holiday

** Philippines has sufficient oil supply, says President Marcos

(Reporting by Roushni Nair in Bengaluru; Editing by Sumana Nandy)

((Roushni.Nair@thomsonreuters.com))