South Korea's stock market posted its best day in nearly two decades, leading a recovery in emerging-market equities as signals of potential de-escalation in the Iran conflict boosted riskier assets. MSCI's developing-nation equities index rose 2.4%, with Seoul-listed companies jumping 9.6% — the most since October 2008. The rally still left the EM gauge down more than 6% for the week.

News reports suggesting Iran may be ready to reduce tensions with the US and Israel improved risk sentiment, steering markets away from worst-case scenarios that would have kept demand for EM assets capped. An Iranian statement that the Strait of Hormuz remains open bodes well for global oil supplies. The emerging-market currency index gained 0.2%, with the Indian rupee boosted by central bank interventions, while oil-importing nations' currencies lagged.

African dollar bonds extended their recovery as investors bet regional borrowers will benefit from elevated commodity prices. The premium over US Treasuries narrowed about seven basis points to 339. In monetary policy, Malaysia kept its benchmark rate unchanged as it warned of rising downside risks from the Middle East conflict. Poland's central bank governor is set to speak later, following Wednesday's interest rate cut that signals policymakers see domestic inflation pressures staying subdued despite rising global energy costs.