By Harish Sridharan
Sept 14 (Reuters) - Currencies and shares in Asia's emerging markets fell sharply on Wednesday, as the dollar advanced after a hotter-than-expected U.S. inflation report fuelled bets that Federal Reserve rates may have to be raised higher for longer.
South Korea's won KRW=KFTC declined 1.6% to its lowest since March 2009. Indonesia's rupiah IDR= weakened to a six-week low, while the Malaysian ringgit MYR= slid 0.4% to a level seen since January 1998.
"A sharp repricing of rates expectations will lead to a widening of yield differentials and that puts more pressure on AXJ FX," said Christopher Wong, a currency strategist at OCBC Bank.
"The risk of tighter financial conditions and growth worries further undermines trade-dependent and high-beta FX like the Korean won, Taiwanese dollar and the Thai baht."
Data showed the U.S. headline Consumer Price Index rose 0.1% on a monthly basis, compared to expectations for a 0.1% decline. Core inflation, stripping out volatile food and energy prices, doubled to 0.6%.
"Upside surprise in U.S. CPI (on several dimensions) dashed inflated hopes that entrenching signs of peaking inflation will allow the Fed to dial back on aggressive tightening," said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
Persistent dollar strength has pressured Asian currencies this year, with the won, Philippine peso PHP= and Taiwanese dollar TWD=TP all down more than 10%. A slumping Chinese yuan CNY=CFXS has further exacerbated the weakness in the region's currencies.
"Given the excessive moves in FX markets, I won't rule out central banks engaging in further jaw-boning," OCBC Bank's Wong said.
South Korean and Japanese officials have warned about currency market intervention, with a weak growth outlook adding to the downward pressure on the won and low rates weighing on the yen.
The Bank of Japan has conducted a rate check in apparent preparation for currency intervention, the Nikkei reported, as policymakers stepped up warnings about sharp falls in the yen.
The yen JPY= reversed losses to trade up 0.7%.
Overnight, Wall Street saw its steepest fall in two years, the safe-haven dollar posted its biggest jump since early 2020, and two-year Treasury yields US2YT=RR, which rise with traders' expectations of higher Fed fund rates, jumped to the highest in 15 years. MKTS/GLOB
Money markets currently price in 37% odds for a full percentage-point hike on Sept. 21, versus a 63% probability of another 75 basis-point move.
In Asia, Taipei stocks .TWII settled 1.6% lower in their worst session in a week, while equities in Manila .PSI, Seoul .KS11 and Singapore .STI all fell more than 1%.
** BOJ checks FX rates in apparent preparation for currency intervention - Nikkei
** Baring Private Equity raises $11.2 bln in one of Asia's largest buyout funds
** Thailand approves more energy support, wage hikes
** Indonesian parliament's key committee approves 2023 budget
Asia stock indexes and currencies at 0653 GMT
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(Reporting by Harish Sridharan in Bengaluru; Editing by Subhranshu Sahu)