EMERGING MARKETS-Turkey off lows as emerging markets bounce

By Sujata Rao

LONDON, Oct (Shenzhen: 000069.SZ - news) 10 (Reuters) - A dollar retreat allowed emerging stocks to bounce 0.7 percent on Tuesday to again stand a whisker off three-year highs, while Turkish markets too tried to claw back some losses, with the lira firming 0.25 percent.

Emerging stocks touched two-week highs, recovering from the previous day's loss, and stand now just 0.6 percent off recent three-year highs thanks to strong gains in Asia. Emerging currencies too broadly strengthened, led by the yuan, which was set for its best day in a month.

Markets continued to focus on Turkey, which is locked in a visa spat with the United States and saw sharp market losses on Monday. The lira firmed 0.25 percent, however, after suffering its biggest one-day fall since July.

The risk premium investors demand to hold Turkish dollar bonds compared to U.S. Treasuries is approaching the 300 basis point mark last hit in early July, while average yields on Turkey's portion of JPMorgan (LSE: JPIU.L - news) 's local debt index, the GBI-EM, closed on Monday at the highest since 2009

JPMorgan said it was holding on to long lira positions, with a supportive global backdrop limiting macro-economic impact from the crisis, especially as U.S. visitors accounted for just 1.2 percent of Turkey's tourist arrivals.

Analysts at the bank predicted "the lira to settle down and gradually reverse losses", but with negative sentiment potentially affecting portfolio flows into Turkey, they advised clients to price in interest rate rises.

"The lira depreciation clearly adds substantial risks to the inflation outlook as well as to inflation expectations, which have continued to rise in recent months. As such, unlike in FX, we believe there is still a risk premium to be priced in forward rate agreements," JPM added.

Other emerging currencies also firmed, with the rand bouncing half a percent off six-month lows, while the rouble rose 0.4 percent

In central Europe, the forint firmed 0.2 percent to the euro after Hungarian data showed a fall in headline inflation but core prices rising to 2.9 percent.

But with authorities seen keen to hold the forint around 3.10 per euro, most analysts expect little change to the central bank's dovish stance.

For GRAPHIC on emerging market FX performance 2017, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI (Frankfurt: 3HM.F - news) 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 1108.10 +7.69 +0.70 +28.51

Czech Rep 1057.97 -1.14 -0.11 +14.80

Poland 2507.07 +7.72 +0.31 +28.70

Hungary 37813.46 -195.29 -0.51 +18.16

Romania 8023.73 +17.36 +0.22 +13.25

Greece 751.34 +1.17 +0.16 +16.73

Russia 1132.77 +0.32 +0.03 -1.70

South Africa 51299.83 -23.40 -0.05 +16.85

Turkey 02365.02 +1067.01 +1.05 +31.00

China 3383.54 +9.16 +0.27 +9.02

India 31901.46 +54.57 +0.17 +19.81

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2017

Czech Rep 25.87 25.88 +0.03 +4.38

Poland 4.29 4.30 +0.06 +2.55

Hungary 310.94 311.45 +0.16 -0.68

Romania 4.57 4.57 -0.03 -0.77

Serbia 119.37 119.12 -0.21 +3.33

Russia 58.03 58.24 +0.37 +5.57

Kazakhstan 337.07 341.32 +1.26 -1.01

Ukraine 26.55 26.48 -0.26 +1.69

South Africa 13.73 13.79 +0.47 +0.02

Kenya 103.10 103.15 +0.05 -0.71

Israel 3.50 3.51 +0.20 +9.93

Turkey 3.69 3.70 +0.28 -4.42

China 6.58 6.62 +0.61 +5.46

India 65.32 65.35 +0.05 +4.03

Brazil 3.19 3.19 +0.00 +2.04

Mexico 18.61 18.67 +0.33 +11.34

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 306 2 .00 8 03.50 1

All data taken from Reuters at 08:57 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.

(Reporting by Sujata Rao; Editing by Mark Potter)