Hawkish Fed hammers emerging stocks; currencies outside Asia rise
* Markets start to price in more than four Fed hikes this year
* China's yuan slides 0.7%; Alibaba slides 7%
* Russian rouble firms after breaching 80 a dollar on Wed
* S.Africa cenbank seen hiking by 25 bps at 1300 GMT
By Susan Mathew
Jan 27 (Reuters) - Emerging market stocks slumped to over 14-month lows on Thursday and currencies were set for the worst session in more than five months, after the U.S. Federal Reserve signalled a March hike in interest rates and sustained policy tightening.
Subsequent interest rate increases and an eventual reduction in the Fed's asset holdings would follow as needed, Fed Chair Jerome Powell said.
The comments spurred bets about more Fed tightening than speculated. Nomura now expects a 50-basis-points hike in March, as opposed to 25 bps markets had priced in, and along with BNP Paribas and BofA, now sees more than four hikes this year.
As U.S. Treasury yields hit 23-month highs and the dollar surged, most Asian currencies .MIEM00000CUS slumped, with the Chinese yuan CNY= sliding 0.7% for its steepest fall since June.
But currencies elsewhere in the developing world fared better.
For bond markets, the Fed's balance sheet reduction is eyed, said Kiti Pantskhava, deputy head of research and fixed income at BCS Global Markets.
"Signs are coming from the Fed that they will stop asset purchase and begin to reduce the balance sheet. That's potentially a bit more painful for EM. That will more likely affect long term U.S. Treasury yields and longer-term paper all over the world."
Russia's rouble RUB= gave up early losses to trade 1.2% higher. It was last at 78.5 per dollar after breaching 80 on Wednesday. Ukraine's hryvnia UAH= hit fresh four-year lows and was last trading down 0.2%.
The United States had set out a diplomatic path to address sweeping Russian demands in eastern Europe, Washington said, as Moscow held security talks with Western countries and intensified its military build-up near Ukraine with new drills.
South Africa's rand ZAR= rose 0.6% ahead of a central bank meeting later in the day when investors expect a 25 basis points hike to 4% in the key interest rate as inflation rises.
As the dollar rally pressured the euro, the Czech crown EURCZK= rallied 0.4% against the euro.
Turkey's lira TRY= fell 0.1% after the central bank hiked its year-end annual inflation forecast to 23.2%, from 11.8% three months ago.
The EM stocks gauge .MSCIEF dropped 1.6%, as China property and technology majors slid with Alibaba 9988.HK down 7.2%.
China Evergrande Group 3333.HK slumped after the developer's thinly detailed roadmap for restructuring left investors dissatisfied. A report on Thursday said Beijing was weighing breaking up Evergrande.
The broader EM stocks index is down about 4.2% so far this week, set for its worst weekly performance since August.
For TOP NEWS across emerging markets
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see
Reporting by Susan Mathew in Bengaluru; Editing by Shailesh Kuber
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.