EMERGING MARKETS-Emerging markets rally with dollar bond premia at new 3-yr low

By Claire Milhench

LONDON, Oct (Shenzhen: 000069.SZ - news) 4 (Reuters) - Emerging markets extended gains on Wednesday, with equities rising half a percent and sovereign dollar debt yields at a new three-year lows, underpinned by buoyant economic data worldwide and a dollar retreat.

The dollar and U.S. Treasury yields slipping off multi-week highs also helped, while expectations of relatively slow policy tightening process by the the U.S. Federal Reserve keeps money flowing into emerging market funds.

Average yield spreads on emerging sovereign bonds over U.S. Treasuries was at 284 basis points (bps), the lowest level since September 2014, narrowing 56 bps since the start of the year.

"If U.S. (Treasury) yields fail to move meaningfully higher, this momentum can drive EM spreads another 20-30 bps lower this year, beating all expectations when we started 2017," Simon Quijano-Evans, emerging markets strategist at Legal & General (LSE: LGEN.L - news) Investment Management, told clients.

MSCI (Frankfurt: 3HM.F - news) 's benchmark emerging stocks index rose 0.5 percent in a fourth straight day of gains, still supported by strong factory activity data from the world's second largest economy China and emerging Europe, reflecting a broad export boom.

The Hong Kong bourse hit its highest since May 2015, up 0.6 percent, extending Tuesday's 2.2 percent gains which were partly driven by China's weekend decision to cut the amount of cash some banks must hold as reserves, boosting Chinese banks and insurers.

Chinese mainland markets are closed for a week-long holiday.

Indian shares rose 0.5 percent and the rupee firmed 0.3 percent as the central bank held rates at 6 percent as expected. While economic growth is slowing, inflation is at a five-month high, threatening the bank's target.

"Economic fundamentals suggest that there exists an easing bias in the monetary policy. However, central bankers are likely to reserve some ammunition today, citing the reason of the recent pick-up in inflation," Commerzbank (Xetra: CBK100 - news) wrote.

Indian 10-year yields stand just off four-month highs .

The Polish central bank is also likely to keep rates steady at a record low 1.5 percent and the zloty firmed 0.4 percent against the euro .

Liam Carson, emerging Europe economist at Capital (Other OTC: CGHC - news) noted that inflation had surprised to the upside last month and predicted inflation to breach the 2.5 percent target in early-2018.

"That should be enough to persuade some of the more dovish members to turn more hawkish and that will prompt the start of the tightening cycle," he added.

The rouble strengthened 0.3 percent, helped by data showing Russia's services sector hit a three-month high in September while South Africa's rand firmed 0.4 percent, climbing off a six-month low hit on Tuesday.

The rand was helped up by dollar weakness, overshadowing data showiong private sector activity shrinking at the fastest rate in 17 months.

For GRAPHIC on emerging market FX performance 2017, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see http://tmsnrt.rs/2dZbdP5

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 1102.28 +5.25 +0.48 +27.83

Czech Rep 1050.43 -0.77 -0.07 +13.98

Poland 2472.95 +3.44 +0.14 +26.95

Hungary 37685.60 -222.97 -0.59 +17.76

Romania 7884.49 -3.52 -0.04 +11.28

Greece 755.59 +3.15 +0.42 +17.39

Russia 1127.67 -2.23 -0.20 -2.14

South Africa 50326.35 +186.42 +0.37 +14.63

Turkey 04757.54 +849.97 +0.82 +34.07

China 3349.22 +9.57 +0.29 +7.91

India 31713.55 +216.17 +0.69 +19.11

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 25.87 25.92 +0.19 +4.40

Poland 4.30 4.31 +0.44 +2.54

Hungary 310.91 312.01 +0.35 -0.67

Romania 4.58 4.58 +0.07 -0.98

Serbia 119.06 119.14 +0.07 +3.60

Russia 57.83 57.91 +0.15 +5.94

Kazakhstan 344.00 342.84 -0.34 -3.01

Ukraine 26.79 26.68 -0.41 +0.78

South Africa 13.59 13.65 +0.42 +1.03

Kenya 103.20 103.30 +0.10 -0.80

Israel 3.52 3.53 +0.24 +9.40

Turkey 3.56 3.57 +0.17 -1.07

China 6.65 6.65 -0.00 +4.35

India 65.32 65.48 +0.25 +4.03

Brazil 3.14 3.14 +0.00 +3.53

Mexico 18.17 18.22 +0.25 +14.00

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 305 0 .03 8 04.65 1

(Reporting by Claire Milhench; graphic by Sujata Rao; Editing by Toby Chopra)