EMERGING MARKETS-U.S. political woes lift emerging stocks, FX ahead of Fed

By Karin Strohecker

LONDON, Dec (Shanghai: 600875.SS - news) 13 (Reuters) - Emerging stocks and currencies sailed higher on Wednesday ahead of an expected Federal Reserve interest rate hike, lifted by U.S. assets nursing losses after President Donald Trump's Republicans suffered an election defeat.

MSCI (Frankfurt: 3HM.F - news) 's emerging market equity benchmark rose 0.4 percent thanks to solid gains among Asian heavyweights, where Hong Kong jumped 1.5 percent, while Seoul and China mainland shares rose nearly 1 percent.

However, bourses elsewhere suffered with Moscow snapping a three day winning streak while South African stocks and much of eastern Europe also traded weaker.

Gains in Asian markets came after the dollar was put on the backfoot by U.S. Democrat Doug Jones's win over Republican Roy Moore in a bitter U.S. Senate race in Alabama. Moore's defeat may make it harder for Trump to advance his policy agenda.

The election result weighed on Treasury yields and U.S. stocks futures, while the dollar index - which tracks the greenback against a basket of six major rival currencies - traded 0.1 percent weaker.

It also temporarily seized the spotlight away from the Federal Reserve, which is widely expected to raise interest rates later on Wednesday and could provide clues about the timing of future U.S. policy moves.

"The Fed seems intent on hiking in December, despite admitting that it does not have a clue why inflation remains absent," Rabobank wrote in a note to clients.

"Since the third rate hike of the year has been well-telegraphed by the Fed, and the balance sheet is on autopilot, markets are likely to focus on the fresh set of projections, in particular the dot plot."

The Fed was not the only central bank due to publish its latest decision. Many emerging currencies strengthened cautiously as they awaited word from policy makers on Thursday in Turkey, Mexico, Chile (Stuttgart: 704599.SG - news) , Indonesia, Colombia and other countries.

Turkey's lira strengthened 0.2 percent ahead of the central bank meeting where analysts expect 100 basis points in policy tightening in its late liquidity window to counter double-digit inflation and keep foreigners keen on its bonds.

Mexico's peso strengthened 0.1 percent as markets expect policy makers to match the predicted 25 bps Fed interest rate hike to beat back persistently above-target inflation.

Central banks in Chile, Indonesia and Colombia are all expected to hold their rates for now.

Meanwhile in South Africa, the rand gained 0.3 percent after data showed headline November consumer inflation slowed to 4.6 percent on the year from 4.8 percent.

Investors were also awaiting the ruling ANC party to elect a new leader at its congress which kicks off on the weekend. Its decision could impact the rand and central bank policy.

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)

(Reporting by Karin Strohecker; Editing by Raissa Kasolowsky)