GLOBAL MARKETS: Stocks rally on AI enthusiasm, dollar holds steady

SINGAPORE - Asia stocks rallied on Wednesday after a resurgence in AI enthusiasm ahead of earnings from industry bellwethers later in the US day, while the dollar was perky ahead of a Federal Reserve policy decision.

South Korean chipmaker SK Hynix 000660.KS reporting a more than seven-fold rise in quarterly operating profit added to the buoyant mood.

The AI rally faces its next test when technology giants Alphabet GOOGL.O and Microsoft MSFT.O report earnings after market close, with investors looking for evidence of returns that would justify the hefty price of AI build-out.

"While we're expecting strong results across the board, the focus is less about the actual earnings results than about whether the capex spending for AI growth will translate into sustainable revenue growth for these companies, which remains a big question mark," said SWBC Chief Investment Officer Chris Brigati.

"The period of a rising market lifting all stocks has started to shift. Future expectations are more focused upon execution risk and how much future success is already embedded in the current stock price."

Ahead of US earnings, MSCI's broadest index of Asia-Pacific shares outside Japan .MISX00000PUS was up 0.85% in early Asia trade, with Japan's Nikkei .N225 adding 1.2% and South Korea's KOSPI .KS11 jumping more than 3%.

Shares of SK Hynix rose 3% shortly after open, before paring gains to last trade 1.75% higher.

A series of AI-related funding announcements from Meta META.O, SpaceX SPCX.O and Broadcom AVGO.O this week has breathed new life into the AI trade, with sentiment further boosted by Anthropic's initial public offering filing.

U.S. futures NQc1, ESc1 were little changed, while EUROSTOXX 50 futures STXEc1 edged 0.03% lower.

WHAT WILL THE FED DO?

Earnings aside, investors are watching for the Fed's policy decision later on Wednesday, where a steady outcome is widely expected. 0#USDIRPR

Market focus, however, will be on what policymakers say regarding the outlook for interest rates, with inflation concern still front and centre as war in the Middle East drags on.

Analysts at JPMorgan said in a client note they anticipate at least two hawkish dissents.

"Market participants will likely focus on how Chair (Kevin) Warsh couches the decision, and we think deferring on an explanation will be viewed as dovish in nature," they said.

Ahead of the decision, the dollar index =USD held near a two-week high against six major currencies at 102.37.

Meanwhile, the kiwi NZD= tumbled more than 1% after the Reserve Bank of New Zealand confounded market expectations by leaving its policy interest rate unchanged.

The Australian dollar AUD= rose 0.25% to $0.7043 following data which showed consumer prices rose sharply in the third quarter of the year as fuel costs jumped, while core inflation stayed uncomfortably hot.

In Israel, the shekel ILS= weakened after exit polls showed the country's wartime election appeared deadlocked.

In oil markets, Brent crude futures LCOc1 were up 0.47% at $114.42 a barrel and US crude CLc1 added 0.55% to $100.45. O/R

An agreement to end the US-Israeli war with Iran remains elusive. Iranian Security Council chief Mohsen Rezaei met Supreme Leader Ayatollah Mojtaba Khamenei on Tuesday, a day after talks with representatives of Saudi Arabia, Turkey and Pakistan.

Spot gold XAU= was largely flat at $4,057.95 an ounce. GOL/

-Rae Wee; Editing by Christopher Cushing/Reuters