EMERGING MARKETS-Emerging market losses pause; S.Africa stays under pressure

By Sujata Rao

LONDON, Aug 25 (Reuters) - Emerging markets enjoyed some respite on Thursday in line with a pause in the dollar, though the rand stayed under pressure after hefty losses caused by an apparent power struggle between the South African presidency and treasury.

Emerging stocks have eased off one-year highs hit in mid-August as robust U.S (Other OTC: UBGXF - news) . data and hawkish comments from Federal Reserve officials have boosted the dollar by reviving expectations of interest rate rises this year. Markets are now on tenterhooks before Fed chief Janet Yellen's speech on Friday.

MSCI (Frankfurt: 3HM.F - news) 's emerging equity index rose 0.3 percent off two-week lows and most currencies firmed marginally against the greenback. Chinese mainland stocks were the outlier, falling 0.6 percent as property shares slumped.

Most of the attention was on South Africa, however.

The rand inched off three-week lows touched on Wednesday and bond yields eased from two-week highs.

But the stabilisation looks fragile as Finance Minister Pravin Gordhan refused to appear before police who had summoned him over an investigation into a suspected rogue spy unit in the tax service.

Gordhan's efforts at the treasury are seen as key to preserving South Africa's investment grade credit rating and many suspect he is the target of pressure from a faction allied to President Jacob Zuma. His refusal to meet the police could set the stage for a prolonged tussle and rock markets further.

"The rand will be quite vulnerable going forward," said Per Hammarlund, chief EM strategist at SEB (LSE: 0MGS.L - news) in Stockholm.

"There is definitely a political power struggle between the Zuma faction and the finance ministry. If the markets don't react too much to Zuma's pressure on Gordhan, he will continue to press quite hard."

Heavy rand positioning has increased the currency's vulnerability - prior to this week, its year-to-date gain against the dollar totalled almost 15 percent. JPMorgan (LSE: JPIU.L - news) said its latest client survey showed positioning in South African bonds was at the highest since early 2015.

"We think there is scope for the rand to weaken further in the short-term - 2-4 percent," JPM told clients.

The mood was sombre also in the Gulf as oil's decline saw stocks extending Wednesday's falls. Saudi Arabian shares fell more than 1 percent to new six-month lows while Dubai and Qatar tumbled 0.6 and 0.8 percent respectively .

Russian stocks too fell half a percent though the rouble managed to recover slightly.

Turkish markets too stabilised after falling heavily on Wednesday when the country sent tanks over the border into Syria to counter Islamic State militants. Turkish stocks bounced 0.9 percent while the lira firmed 0.3 percent.

However, Polish stocks stayed under pressure. Poland's biggest insurer PZU, believed to be keen on acquiring Unicredit (EUREX: DE000A163206.EX - news) 's stake in lender PKO, lost more ground , holding near record lows.

In bond news, Poland is poised to become only the second sovereign to print an onshore yuan-denominated "panda" bond, having guided Chinese investors towards a 3.2-3.7 percent yield.

For GRAPHIC on emerging market FX performance 2016, see http://link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2016, see http://link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2016, see http://link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2016, see http://link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley (Xetra: 885836 - news) Emrg Mkt Indx 898.67 +1.92 +0.21 +13.16

Czech Rep 856.42 -1.64 -0.19 -10.45

Poland 1781.77 -4.55 -0.25 -4.16

Hungary 27896.42 -52.85 -0.19 +16.62

Romania 6934.86 -17.98 -0.26 -0.99

Greece 567.83 -0.11 -0.02 -10.06

Russia 958.71 +0.67 +0.07 +26.64

South Africa 46665.44 -193.13 -0.41 +1.90

Turkey 76802.33 +686.02 +0.90 +7.08

China 3068.23 -17.65 -0.57 -13.31

India 28024.76 -35.18 -0.13 +7.30

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.02 27.02 +0.03 -0.07

Poland 4.31 4.31 -0.03 -1.14

Hungary 309.44 309.20 -0.08 +1.68

Romania 4.45 4.45 -0.08 +1.48

Serbia 123.28 123.25 -0.02 -1.47

Russia 64.95 65.21 +0.40 +12.32

Kazakhstan 339.76 338.24 -0.45 +0.22

Ukraine 25.30 25.33 +0.14 -5.31

South Africa 14.14 14.16 +0.18 +9.38

Kenya 101.30 101.30 +0.00 +0.89

Israel 3.77 3.76 -0.12 +3.20

Turkey 2.94 2.95 +0.39 -0.77

China 6.65 6.66 +0.03 -2.43

India 67.06 67.12 +0.09 -1.28

Brazil 3.22 3.22 -0.00 +22.78

Mexico 18.47 18.46 -0.10 -7.06

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 362 1 .00 7 69.25 1

All data taken from Reuters at 08:17 GMT.

Currency percent change calculated from the daily U.S.

close at 2130 GMT.

(Additional reporting by Claire Milhench; editing by Mark Heinrich)