Fed, Ukraine worries pressure stocks for third session
By Susan Mathew and Anisha Sircar
Jan 25 (Reuters) - Emerging market shares fell sharply for a third straight session on Tuesday as the threat of Russia-Ukraine military conflict and wariness over U.S. monetary policy weighed on sentiment.
Equity markets in Turkey .XU100 , Hungary .BUX and Romania .BETI fell between 0.2% and 2.9% in volatile trade as the West stepped up preparations for its response to any Russian invasion of Ukraine.
But after a brutal European session on Monday, other markets were showing signs of stabilising. Russia's IMOEX .IMOEX share index climbed 1.2%, paring the previous session's near 6% slide, while those in South Africa .JTOPI and Poland .WIG firmed around 1.3% each.
"Markets are trading very nervously. At the moment, we're seeing increasing tensions being built up around Ukraine from both sides," said Jakob Christensen, chief analyst and head of EM research at Danske Bank.
"The next step to watch out for is the U.S. response to Russian demands," he said.
Given the rouble's slide - 4.7% this year - Christensen expects the Russian central bank to be slightly more hawkish in February and sees a 50 basis points interest rate hike.
Russia's rouble RUB= was 0.6% stronger at 78.6 a dollar after sliding to 14-month lows on Monday, while Ukraine's hryvnia UAH= edged 0.2% higher after its worst session in almost two years.
Russian OFZ bonds RU10YT=RR steadied, while hard-currency debt RU234748670= RU097172196= continued to fall on Tuesday.
The broader MSCI index of emerging shares .MSCIEF fell 1.1% as investors braced for a hawkish Federal Reserve.
While a 25 basis point hike in March is fully priced in, there is plenty of market speculation about a rate raise as soon as Wednesday when the Fed concludes its two-day meeting.
Ahead of the Chinese New Year holidays, mainland shares .SSEC .CSI300 lost more than 2%, while the yuan CNY= hit 3-1/2 year highs. Singapore's dollar outperformed regional peers after a surprise hike in interest rates.
With tech stocks down and North Korea firing what appeared to be two cruise missiles into the sea off its east coast on Tuesday, South Korea's KOSPI .KSII slumped to over one-year lows.
The EM index has lost about 1.8% this month but is nonetheless faring significantly better than MSCI's all-country index .MIWD00000PUS , which is down about 6% for the year with pressure coming from the high-value cluster that includes Apple AAPL.O , Amazon AMZN.O and Meta FB.O among others.
Hungary's forint EURHUF= was flat ahead of a central bank meeting later in the day when a 30 bps hike to 2.7% is expected, with inflation this year forecast at its strongest in a decade.
On Thursday, South Africa is seen hiking by 25 basis points to 4%.
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Reporting by Susan Mathew in Bengaluru; Editing by Kirsten
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