EM ASIA FX-Most Asian currencies weaken as China factory data chills sentiment

* Weak China factory readings outweigh Fed's dovish stance

* India's pre-election budget in focus

* Rupiah gains; while rest of Asia FX weakens

(Adds text, updates prices)

By Nikhil Nainan

Feb 1 (Reuters) - Most Asian currencies softened on Friday

as bleak China factory readings knocked back investor sentiment,

which had been improving on signs of progress in Sino-U.S. trade

talks and a shift by the U.S. central bank to a more cautious

stance.

China's factory activity shrank by the most in almost three

years in January as new orders slumped further and output fell,

a private survey showed, reinforcing fears a slowdown in the

world's second-largest economy is deepening.

The data overshadowed apparent progress on trade talks after

U.S. President Donald Trump said on Thursday he will meet with

Chinese President Xi Jinping soon to try to seal a comprehensive

trade deal as the top U.S. negotiator reported "substantial

progress" in two days of high-level talks.

China's yuan weakened 0.4 percent on Friday after

the data, though it still looked set for a second week of gains

against the dollar.

The dollar index, a gauge of its strength versus six major

peers was trading roughly unchanged, but set to fall for

the week.

Thailand's baht dropped 0.3 percent to 31.33

against the dollar. Data on Thursday showed exports contracted

in December.

The baht is on track for a 10th straight week of gains and

is the region's best performing currency. The country's central

bank is set to meet late next week.

"Authorities have more reasons to be wary about the ongoing

currency strength while exports are poised to falter," said ING

in a note on Thursday after the data was published.

Meanwhile, the rupiah rose 0.2 percent to 13,940,

with the unit set to gain nearly 1 percent for the week.

Markets in Malaysia were closed for a holiday.

INDIA ON BUDGET WATCH

The rupee was slightly weaker at 71.125, with

investors awaiting ruling party spending pledges ahead of a

general election in May that may have lead to the country's

fiscal deficit expanding.

"The markets will be looking out for what the budget holds

whether or not there is going to be any big spending promises

that will lead to a larger than expected fiscal deficit, if that

happens, then that will be a negative for the rupee," said Khoon

Goh, ANZ's Head of Asia Research.

With the country's opposition gaining ground, the government

will likely raise spending.

Along with a shortfall in tax collections, that will push

the fiscal deficit up to the equivalent of 3.5 percent of gross

domestic product for the year ending in March, overshooting a

previous 3.3 percent target, according to one of the sources

with direct knowledge of budget discussions.

CURRENCIES VS U.S. DOLLAR

Change on the day at 0340 GMT

Currency Latest bid Previous day Pct Move

Japan yen 108.910 108.87 -0.04

Sing dlr 1.348 1.3452 -0.19

Taiwan dlr 30.725 30.740 +0.05

Korean won 1116.700 1112.7 -0.36

Baht 31.330 31.23 -0.32

Peso 52.230 52.1 -0.25

Rupiah 13940.000 13970 +0.22

Rupee 71.125 71.08 -0.07

Yuan 6.728 6.6995 -0.42

Change so far in 2019

Currency Latest bid End 2018

Japan yen 108.910 109.56 +0.60

Sing dlr 1.348 1.3627 +1.11

Taiwan dlr 30.725 30.733 +0.03

Korean won 1116.700 1115.70 -0.09

Baht 31.330 32.55 +3.89

Peso 52.230 52.47 +0.46

Rupiah 13940.000 14375 +3.12

Ringgit 4.094 4.1300 +0.88

Yuan 6.728 6.8730 +2.16

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Kim

Coghill)