EMERGING MARKETS-China leads hefty weekly losses on emerging markets

By Karin Strohecker

LONDON, Dec (Shanghai: 600875.SS - news) 16 (Reuters) - Emerging markets took a breather on Friday but were on track for weekly losses after the U.S. Fed flagged more rate rises next year, while Chinese assets hit multi-year lows over worries about financial stability.

MSCI (Frankfurt: 3HM.F - news) 's emerging equity benchmark index was flat but poised for a fall of more than 2 percent this week, its biggest decline in five weeks. Shanghai stocks saw the biggest weekly loss in eight months, while Hong Kong markets' losses are the biggest in six months.

While markets had expected the Fed's 25 basis point rate hike on Wednesday, emerging market investors were spooked when the "dot plots" of members' projections showed a median of three hikes next year, up from two previously, pushing the dollar to 14-year highs.

"The final outcome was a done deal, but the message overall appeared more hawkish then we all expected ... and the reaction has been text-book with a sell-off in emerging markets, especially currencies," said Cristian Maggio, head of emerging markets strategy at TD Securities.

"This is a very illiquid time, and it is a pity that these big events - this year like last year - are happening at this time of the year ... so the market moves are overextended."

Fresh jitters over the health of China's economy sent the yuan crashing through the 6.95 per dollar threshold to an 8-1/2 year low.

Beijing's central bank administered a larger-than-expected liquidity injection to counter signs of stress in the interbank markets after the seven-day Shanghai Interbank Offered Rate (SHIBOR) hit a 19-month high.

Chinese 10-year treasury futures closed 1.3 percent higher after tumbling the maximum allowed 2 percent on Thursday, their biggest fall on record. The bonds are on track for their biggest week of losses since October 2010.

"There is now increasing uncertainty whether China will manage to stabilise its currency against the background of continued capital flight," Commerzbank (Xetra: CBK100 - news) wrote.

"On the one hand, the government wants to reduce the risks that have accumulated. On the other hand it has to prevent the local market from suffering too notably thus fuelling capital flight even further."

Currencies hovered unchanged on the day against a flat dollar, but South Africa's rand and Turkey's lira were in line for weekly losses while many currencies in Asia also suffered .

But Russia's rouble was on track to end the week 1.3 percent stronger in its third week of gains, with the central bank due to meet later in the day. Policymakers are expected to keep rates on hold at 10 percent and cut rates in the first quarter of 2017, according to a Reuters poll.

Emerging debt fund outflows slowed to $871 million from $2.6 billion the previous week, according to data from JPMorgan (LSE: JPIU.L - news) , while emerging market equity funds recorded inflows of $682 million, the first positive tally following five straight weeks of outflows.

Cumulative inflows to emerging bond and equities have reached $43 billion and $8.4 billion so far this year, JPMorgan added.

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley (Xetra: 885836 - news) Emrg Mkt Indx 858.61 -0.04 +0.00 +8.12

Czech Rep 914.59 +2.61 +0.29 -4.36

Poland 1907.90 -3.26 -0.17 +2.62

Hungary 31769.51 +133.32 +0.42 +32.81

Romania 7023.23 +24.67 +0.35 +0.27

Greece 621.27 +7.51 +1.22 -1.60

Russia 1139.47 +1.40 +0.12 +50.52

South Africa 43165.26 -886.44 -2.01 -5.75

Turkey 77685.19 +6.60 +0.01 +8.31

China 3124.03 +6.35 +0.20 -11.73

India 26489.56 -29.51 -0.11 +1.42

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.02 27.01 -0.03 -0.08

Poland 4.42 4.43 +0.10 -3.71

Hungary 312.33 312.20 -0.04 +0.74

Romania 4.52 4.52 +0.07 +0.07

Serbia 123.35 123.44 +0.07 -1.52

Russia 61.65 61.70 +0.08 +18.33

Kazakhstan 335.12 335.12 +0.00 +1.61

Ukraine 26.30 26.30 +0.00 -8.93

South Africa 13.93 13.96 +0.23 +10.97

Kenya 102.15 102.15 +0.00 +0.05

Israel 3.86 3.85 -0.30 +0.63

Turkey 3.49 3.51 +0.64 -16.39

China 6.96 6.94 -0.20 -6.66

India 67.80 67.85 +0.07 -2.36

Brazil 3.37 3.37 +0.00 +17.52

Mexico 20.35 20.33 -0.09 -15.61

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 370 2 .06 7 30.22 1

All data taken from Reuters at 10:19 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.

For GRAPHIC on emerging market FX performance 2016, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2016, see http://tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Reporting by Karin Strohecker; Editing by Tom Heneghan)