By Anshuman Daga
SINGAPORE, Jan 25 (Reuters) - Asian equities extended their winning run to scale their highest levels in seven months on Wednesday, with South Korean stocks leading the way, and the Australian dollar hit multi-month highs as surging inflation made higher interest rates more likely.
MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.4% to a seven-month high, with South Korean shares gaining 1.3% as trading resumed after the Lunar New Year holidays.
The MSCI gauge has rallied 9% so far this year after slumping nearly 20% in 2022. Trading volume was depressed as Chinese and Taiwan markets were closed for holidays.
Nikkei gained 0.1% and Singapore jumped 1.7%.
Globally, stocks have posted strong gains this year after a torrid 2022, based on expectations that inflation is close to peaking and the rise in U.S. interest rates will taper off. The dismantling of COVID controls in China and the re-opening of its borders have further boosted investor sentiment.
"It appears that markets are increasingly seduced by "Goldilocks" outcomes of tightening risks tamed yet recession risks tempered," Mizuho analysts said in a note.
U.S. stock indexes closed mixed on Tuesday after companies warned of a tough year ahead along with some profit beats, while data showed U.S. business activity contracted for a troubling seventh straight month in January.
Microsoft Corp rose in after-hours trade as its better-than-expected results showed some strength in the face of a weak economy.
MSCI's all-country world index eked out a fresh five-month closing high on Tuesday.
Stronger-than-expected economic data in Europe has eased market worries of a sharp recession in the euro zone as energy prices decline, though interest rates are still seen creeping up.
The euro held near a nine-month peak against the dollar, as trades were encouraged by a rosier growth outlook for the euro zone against signs of a recession looming in the United States.
Australian equity markets slipped 0.2% on Wednesday after a shock surge in inflation to a 33-year high last quarter added to the case for the Reserve Bank of Australia to keep raising interest rates.
Investors sharply narrowed the odds on the Reserve Bank of Australia (RBA) lifting its cash rate by a quarter point to 3.35% when it meets on Feb. 7. Analysts had thought there was some chance the RBA might even pause its tightening campaign, but the pace of inflation put paid to that.
The Kiwi however slid nearly 0.4% to $0.648 after New Zealand's annual inflation of 7.2% in the fourth quarter came in below its central bank's forecast of 7.5%.
U.S. crude oil prices were stable at $80 a barrel after falling in the previous session as preliminary data indicated a bigger than expected build in U.S. oil inventories.
Gold prices held steady at $1,938 per ounce, hovering near a nine-month peak touched in the previous session.
(Editing by Simon Cameron-Moore)