EMERGING MARKETS-EM assets jump on US-Iran peace deal

* Oil prices fall nearly 5%

* Frontier market bonds jump, Middle Eastern debt firms

* Taiwan's central bank seen holding rates steady through 2027

By Avinash P

June 15 (Reuters) - Emerging market assets rallied on Monday as global risk appetite surged following a preliminary pact between the U.S. and Iran to end their three-month conflict.

The agreement, confirmed by U.S. President Donald Trump on Truth Social, will reopen the vital Strait of Hormuz, sending oil prices down nearly 5% to three-month lows.

The reopening of the critical artery of energy supplies is expected to ease the inflation fears that had recently forced global central banks to tilt more hawkish. "Financial markets have had opportunities to react to this kind of deal on several occasions already," said analysts at ING.

"The bigger reaction could come at the short end of yield curves, where central banks have had to clear up the inflationary mess left by the energy spike in April and May."

MSCI's gauge tracking EM stocks gained 2.8%, while the corresponding currencies index was up 0.3%. Markets had rallied on Friday after signs of an imminent peace deal were touted.

BOND MARKETS REBOUND With inflation fears cooling, international bonds issued by frontier markets rallied sharply, with many recovering to pre-war levels.

Energy-dependent nations saw the largest gains. Sri Lanka's 2038 bond jumped over 2 cents to trade just above 99 cents on the dollar, while Egypt's debt rose 1.8 cents. Kenya and Pakistan both gained over a cent, while Middle Eastern debt also ticked up. In Asia, equity gains were led by heavyweights South Korea and Taiwan, which advanced 5.2% and 2.8%, respectively. Both bourses are among the best-performing markets this year, boasting gains of more than 100% and 50% year to date, respectively, fuelled by an eye-popping AI rally. Taiwan's central bank is expected to hold its policy interest rate steady this week and keep it in place into 2027, according to economists polled by Reuters. China's stock benchmarks rose 1.6% and 2.4% respectively. Global ratings agency Fitch affirmed the nation's 'A' sovereign rating with a stable outlook.

The yuan touched its strongest level in over three years. India's rupee appreciated 0.5%, while the Indonesian rupiah and Sri Lankan rupee were up 1% each.

South Africa's stocks jumped 3%, while the rand strengthened 0.6%. Stronger gold prices also aided gains as the country is among the major exporters of the yellow metal. Turkey's benchmark advanced 2.7%. Industrial production rose 3.7% month-on-month in April on a seasonally and calendar-adjusted basis, official data showed.

Most emerging market currencies were flat to lower against the euro. However, the Hungarian forint gained 0.6% against the dollar taking its yearly gains to over 7.7% and making it one of the best-performing currencies in 2026.

Stocks in Poland gained 0.8%, while Hungary added 0.6%. Romanian stocks however, declined 0.6%.

HIGHLIGHTS:

** China bonds emerge as surprise haven as Iran war reshapes portfolios ** EU envoys agree to first phase of membership talks for Ukraine and Moldova ** What's happening with the contested ballots in Peru's election?

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For RUSSIAN market report, see (Reporting by Avinash P in Bengaluru, Editing by Louise Heavens)