Rate hike jitters knock down EM stocks, Turkey's lira extends declines

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>EMERGING MARKETS-Rate hike jitters knock down EM stocks, Turkey's lira extends declines</title></head><body>

Turkey's lira extends losses, hits record low

South Africa current account, manufacturing data due

Hungary inflation eases for fourth month in a row

EM stocks off two-month highs, currencies muted

By Amruta Khandekar and Siddarth S

June 8 (Reuters) -Emerging market stocks eased from near two-month highs on Thursday as investors fretted about interest rates in major global economies staying higher for longer, while Turkey's lira extended losses to hit an all-time low.

MSCI's emerging market stocks index .MSCIEF was down 0.2% by 0825 GMT, slipping from its highest level since mid-April hit in the previous session, with Taiwan stocks .TWII leading declines, down 1.1%.

Surprise rate hikes by the Bank of Canada (BoC) and the Reserve Bank of Australia (RBA) this week have fanned fears of another rate increase by the U.S. Federal Reserve in July even if the central bank pauses next week.

Such concerns have driven up U.S. Treasury yields and stalled a recent string of gains in EM stocks driven by the lifting of the U.S. debt ceiling and hopes of a stimulus from China to shore up its struggling economy.

"We really don't expect the Federal Reserve to hike next week, especially going off of recent Fed commentary. In the interim, what we're going to see is just a bit of a shake up in positioning (which) could weigh on some yield sensitive emerging market currencies," said Simon Harvey, head of FX analysis at Monex Europe.

Among EM currencies, Turkey's lira TRYTOM=D3 slipped to a fresh record low of 23.4 to the dollar, extending its sharp drop from the previous session that was seen as a sign of authorities easing controls on the foreign exchange market.

The currency's heavy losses in recent days have spurred speculation about a pivot from President Tayyip Erdogan's unorthodox monetary policy of cutting interest rates.

"The more the lira depreciates between now and the next (Turkish central bank) meeting, the more likely the possibility the (bank) hikes rates because fundamentally that is the best mechanism they have to offset any depreciation in that period where the currency is going to be recalibrating with its economic fundamental," Harvey added.

The South African rand ZAR= rose 0.7% against the dollar, holding onto gains made since the start of the week on easing power cuts.

The country's first-quarter current account and April manufacturing data are due to be released later in the day.

Elsewhere, the Hungarian forint EURHUF= shed 0.1% against the euro after inflation eased for a fourth straight month in May, keeping a path open for the central bank to further lower interest rates.

For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets nTOPEMRG

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

Reporting by Amruta Khandekar; Editing by Shailesh Kuber


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