EMERGING MARKETS-Russian stocks snap losing streak; emerging index at 17-mth high

By Sujata Rao

LONDON, July 22 (Reuters) - Russian stocks snapped a six-day losing streak on Tuesday after signs pro-Moscow rebels in Ukraine were cooperating with investigations into a downed passenger, jet while broader emerging equities surged to 17-month highs.

The other major gainer of the day was Saudi Arabia, where the main bourse index jumped 3.2 percent to a six-year high after regulators said they would open the market to direct foreign investment, a move that could bring the country into mainstream equity indexes next year.

The gains in emerging markets came amid a global rebound in risk appetite, as conciliatory signals from Ukrainian separatists over the airplane disaster settled some investor nerves, lifting shares and dampening safe-haven assets such as gold and the yen.

MSCI (NYSE: MSCI - news) 's emerging equity index rose 0.86 percent, with Chinese stocks having closed at three-month highs .

Russian assets gained across the board after a 10 percent drop in the past week, though investors remained wary of possible further sanctions. Moscow stocks rose 1.75 percent while the rouble firmed 0.8 percent against the dollar.

Russian credit default swaps (CDS) fell 4 basis points to 217 bps. However a weekly sale of rouble bonds was canceled due to what the Treasury termed unfavourable market conditions.

"I think the Russian market's rise today is a liquidity issue: those who could move money out of Russia have done that already to a large extent," said Lars Christensen, chief emerging markets analyst at Danske Bank (Other OTC: DNSKF - news) in Copenhagen.

"Overall we think the generally positive news in the U.S., British, Japanese, and most importantly the Chinese economy is more important that what's going on in Russia at the moment," Christensen said, referring to economic recovery signs in those countries.

ECONOMIC REASONS

European Union ministers meet later on Tuesday but are not seen as likely to impose severe sanctions on Moscow.

"At the end of the day we know Brussels is reluctant to play hardball with Russia. France, Germany and Italy have significant economic reasons to be on the cautious side when engaging in a more serious sanctions war," Citi analysts said.

"Dollar/rouble continues to normalise, as short-term players give back the dollars bought over the past two trading sessions."

Elsewhere, Saudi stocks firmed after the country, currently excluded from mainstream equity indexes used by international investors, said it could make its $530 billion market directly accessible to non-Arab buyers.

MSCI said a decision on including Saudi Arabia in emerging indexes could be taken in June 2015.

"This move ... will potentially unlock significant demand by foreign investors for direct exposure to Saudi Arabian equities and could be a major catalyst for continued strong performance from the market," Viktor Broczko, a senior investment manager at Advance Emerging Capital, told clients.

Indonesian shares surrendered early gains and fell more than 1 percent to one-week lows, on worries about potential unrest after the likely loser in presidential elections attempted to delay the official result, though the candidate, Prabowo Subianto, later pulled out.

The result is due at 1300 GMT.

Hungarian stocks rose almost 1 percent but the forint was flat ahead of a central bank meeting that is expected to deliver a 10 basis point rate cut.

For GRAPHIC on emerging market FX performance 2014, see http://link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2014, see http://link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2014, see http://link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2014, see http://link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Additional reporting by Andrew Winterbottom; Editing by David Holmes)