Stocks, currencies fall as China worries weigh
By Susan Mathew
Aug 15 (Reuters) - Most emerging market shares fell on Monday and currencies snapped a four-day rally, as weak economic data from China deepened worries about the world's second-largest economy.
With factory and retail activity squeezed by Beijing's zero-COVID policy and a property crisis, the economy unexpectedly slowing in July, data showed, prompting a rate cut by the country's central bank to stimulate demand.
The Chinese yuan CNY= dropped 0.3% against the dollar. Chinese blue-chips slipped 0.1% and Hong Kong shares .HSI fell 0.6%, pushing a China-heavy emerging market stocks index .MSCIEF down 0.3%.
The broader index had ended last week up 1.4% in its fourth straight week of gains.
"The (Chinese central bank) policy impact will depend on whether the government is able to mitigate the uncertainty associated with zero-COVID policy and Omicron outlook, whether prompt actions can be taken to address the housing market weakness, and an anticipated fiscal funding gap into 4Q," said analysts at JPMorgan.
ING analysts note that with U.S. activity strengthening into the third quarter, the dollar should stay supported, implying more pain for emerging market currencies .MIEM00000CUS .
"We think the dollar does not start to turn lower until 1Q23."
CREDIT RATINGS BITE
Several emerging markets were closed for local holidays on Monday, and moves in others were largely muted. Turkish stocks .XU100 edged up, while the beleaguered lira currency TRY= fell 0.2% against the dollar.
Ratings agency Moody's on Friday lowered Turkey's sovereign credit rating by one notch to "B3" from "B2", citing rising balance of payment pressures and risks of further declines in foreign-currency reserves.
S&P and Fitch, meanwhile, lowered Ukraine's foreign currency ratings, saying they consider the war-ravaged country's debt restructuring as distressed.
In Russia, several major Wall Street banks have begun offering to facilitate trades in Russian debt in recent days, according to bank documents seen by Reuters. This gives investors a chance to dispose of assets widely seen in the West as toxic due sanctions on Russia over its invasion of Ukraine.
Hungary's forint EURHUF= slumped 0.7% against the euro after S&P cut Hungary's credit rating outlook to negative from stable, citing risks to European Union funding and energy supply.
Investors this week will be looking out for economic growth data from central and eastern European economics, with Polish GDP seen contracting in the second quarter.
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Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich
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