EMERGING MARKETS-Currencies rise on U.S. shutdown, PMI data

Reuters

LONDON, Oct 1 (Reuters) - Emerging European currencies roseagainst the dollar on Tuesday after strong strong localmanufacturing data and the first U.S. government shutdown in 17years.

U.S. Federal government agencies have been directed to cutback services after lawmakers failed to pass a temporaryspending bill before a midnight deadline. The impasse has causedbroad dollar weakness.

By contrast, in central Europe purchasing managers' indicesshowed manufacturing strengthening. Poland's PMI showedmanufacturing grew at its fastest pace in 2-1/2 years inSeptember and Hungary's PMI also jumped.

"Markets were looking at PMIs from eastern Europe and mostof them just continued their upward trend, basically confirmingthe relatively rosy picture in central and Eastern Europe," saidThu Lan Nguyen, emerging markets strategist at Commerzbank inFrankfurt.

The forint hit an 11-day high against the euroafter data showing Hungary's seasonally-adjusted PMI rose to54.5 in Sept from a revised 51.8 in August, topping the averageof the past three years and also the long-term average. The zloty was steady before a ratedecision on Wednesday, expected to leave rates unchanged.

The Romanian leu tested the previous day's 11-dayhighs against the euro after the central bank cut rates by 25bps on Monday to 4.25 percent, as expected.

The South African rand gained 0.4 percent and theTurkish lira rose 0.25 percent against the dollar. TheU.S. government shutdown is seen increasing the likelihood thatthe Federal Reserve will keep its bond-buying programme intactthis month.

The rouble also rose 0.3 percent against the dollar,though Russia's central bank moved its rouble corridor by 5kopecks, to allow for a slight weakening in the currency againstits euro-dollar basket.

Emerging sovereign debt spreads widened 6 basispoints to 355 bps over U.S. Treasuries.

The MSCI emerging equities index rose half apercent, however, after hitting 2-1/2 week lows on Monday.Chinese markets were shut for a holiday.

Emerging stocks rose 5 percent in the third quarter, asmarkets grew accustomed to the idea of an expected withdrawal ofU.S. monetary stimulus. But stocks are still down 6 percent onthe year, compared with 15 percent gains in developed markets.

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