By Rajasik Mukherjee

Jan 2 (Reuters) - Emerging Asia stocks began 2026 on an optimistic note with markets in Taiwan, South Korea, and Singapore scaling new records on Friday, as investors waited to test the durability of a recent artificial intelligence-driven rally.

The MSCI index of emerging Asian equities .MIMS00000PUS jumped 1.4% to its highest point since early November, driven by stocks in South Korea and Taiwan, which make up two-fifths of the gauge.

A broader index of global EM equities .MSCIEF also jumped 1% to a nine-week high.

South Korea's KOSPI index .KS11, last year's top performer with a 75% gain, rose 1.6% to a record 4,282.08, driven by Samsung Electronics 005930.KS and SK Hynix 000660.KS, which climbed 5% and 3.5%, respectively.

Taiwan's benchmark index .TWII touched a fresh peak of 29,325.160 points. The index crossed the 29,000-point mark for the first time on December 31, ending the year with a 27% gain, driven by technology and AI-related shares.

"South Korean and Taiwanese equities remain supported by strong AI-driven export demand and solid semiconductor earnings, but upside from here is likely to moderate," said Glenn Yin, the director of research at AC Capital Market.

"Valuations are stretched after last year's sharp rally, making a repeat in 2026 less likely. While structural demand for advanced chips remains intact, performance is likely to be more selective and less explosive."

Singapore's FTSE Straits Times index .STI jumped 0.5% to a record high of 4,669.290 points. The index gained over 22% in 2025, driven by strong gains in heavyweight banks, telecoms, industrials and real estate firms.

Stocks in the Philippines .PSI also advanced 0.8%, while those in Malaysia .KLSE dipped to a six-session low.

Currencies started the year on the back foot: The Indonesian rupiah IDR= depreciated 0.3% against the U.S. dollar, while the Korean won KRW=KFTC slipped 0.2%.

The won had a strong finish to 2025, appreciating just over 3% during the last week of December. The Bank of Korea's chief said the won's recent high-1,400 range against the dollar is well above economic fundamentals, partly driven by local investment in overseas stocks.

The rest of the local currencies traded largely flat, with just the Singapore dollar SGD= rising slightly with a 0.2% gain against the greenback.

The city-state's economy grew 5.7% in the fourth quarter, preliminary government data showed. Its prime minister said that while full-year growth was stronger than expected in 2025, it would be challenging to sustain that pace this year.

Most Asian currencies enjoyed a good run in 2025, backed by strong fundamentals and a softer dollar. The Malaysian ringgit MYR= gained over 10% while the Thai baht THB=TH notched an 8.4% rise.

The dollar index =USD slumped 9% in 2025 and logged its biggest annual drop since 2017 as interest rate cuts, fiscal worries and erratic U.S. trade policy under President Donald Trump weighed on the greenback.

"EM Asian currencies should benefit from a softer U.S. dollar in 2026, but gains will be uneven," Yin said.

"Policy divergence, capital flows and trade dynamics will be the key drivers of FX performance."

Markets in Thailand and China were closed due to a holiday.

HIGHLIGHTS:

** Asia's factories end 2025 on firmer footing as orders pick up

** China's Xi to host South Korea's Lee in the New Year amid Japan tensions

(Reporting by Rajasik Mukherjee in Bengaluru; Editing by Thomas Derpinghaus)

((Rajasik.Mukherjee@thomsonreuters.com))