By Himanshi Akhand

Oct 17 (Reuters) - Emerging Asian currencies weakened and stock indices fell on Friday as concerns about the health of U.S. credit markets sapped risk appetite in markets already on edge over growing U.S.-China trade tensions.

MSCI's gauge of Asian emerging market equities .MIMS00000PUS fell 0.9%, giving up gains from the previous two sessions. The MSCI index of emerging market currencies .MIEM00000CUS edged down 0.2%.

"Emerging concerns of asset quality in the U.S. credit market led to a sharp sell-off in some regional banks in the U.S., resulting in slightly softer risk sentiment overall," Michael Wan, a senior currency analyst at MUFG, said in a note.

Overnight, Zions Bancorporation's announcement that it would take a $50 million loss on two commercial and industrial loans amplified credit market fears in a sector shaken by recent bankruptcies of auto parts maker First Brands and subprime lender Tricolor.

Wan said the credit issues were not systemic or correlated, but the emergence of several cases had raised some eyebrows.

Following Wall Street's losses, shares in Taiwan .TWII slipped 0.7%. Chip giant TSMC 2330.TW dropped 1.4% even after posting a record quarterly profit and issuing an upbeat forecast for spending on artificial intelligence.

Shares in Thailand .SETI, Singapore .STI, and Malaysia .KLSE fell between 0.2% and 0.5%.

South Korean stocks .KS11, driven to a record high earlier in the session by optimism over trade negotiations between Seoul and Washington, gave up most of their gains and were last trading flat. The index was still up about 3.8% for the week.

Indonesian equities .JKSE fell 2.2% and were set for a near 3% weekly drop. Data showed that foreign direct investment into Indonesia fell 8.9% in the third quarter, with the rate of decline sharpest since the first quarter of 2020. The rupiah IDR= weakened 0.1%.

Other regional currencies also lost ground with the Philippine peso PHP= and the South Korean won KRW=KFTC losing 0.2% each.

Adding to the market's unease, China accused the U.S. of stoking panic over its rare earth controls and said Treasury Secretary Scott Bessent had made "grossly distorted" remarks about a top Chinese trade negotiator, rejecting a White House call to roll back the curbs.

Parisha Saimbi, an FX strategist at BNP Paribas, expects trade in dollar-Asian currencies to remain choppy in the near-term with limited U.S. data until the government shutdown is resolved, and uncertainty over U.S.-China tensions until a possible meeting later this month between U.S. President Donald Trump and Chinese President Xi Jinping.

Saimbi expects the Thai baht THB=TH and the Taiwan dollar TWD=TP to underperform in the region. The baht was last down 0.2% and the Taiwanese dollar was flat.

HIGHLIGHTS:

** Singapore's September exports rise 6.9% y/y, much stronger than forecast

** Malaysia's economy grows 5.2% in Q3 on-year, official advance estimate shows

** Malaysia's September exports rise 12.2% on-year, well above forecast

** Short bets climb on South Korea's won; analysts bearish on most Asian FX , Reuters poll shows

(Reporting by Himanshi Akhand in Bengaluru; Editing by Kate Mayberry)

((Himanshi.Akhand@thomsonreuters.com))