Fed taper talk sends emerging stocks to 2-month lows, hits vulnerable currencies

Reuters

By Carolyn Cohn

LONDON, Nov 13 (Reuters) - Emerging stocks dropped more than1 percent to two-month lows and currencies fell on Wednesday onrenewed speculation of a withdrawal of risk-supporting U.S.monetary stimulus.

The Indian rupee hit two-month lows before suspectedcentral bank intervention, and the Indonesian rupiah hit4-1/2 year lows.

Risk aversion grew after Atlanta Federal Reserve PresidentDennis Lockhart said a reduction of the full Fed's bond-buyingprogramme remained a possibility at the next policy meeting inmid-December, although he did say policy should remain veryeasy.

Minneapolis Fed President Narayana Kocherlakota said,however, there was a need for aggressive action to fostergrowth.

Emerging markets have been buffeted by the on-offexpectations of Fed tapering over the past six months, and aredown 7 percent on the year, underperforming developed markets.

The Fed's stimulus has generally pumped world markets withcheap cash, particularly driving emerging markets.

The MSCI emerging stock index was down 1.25percent on Wednesday at its lowest since early September.

Chinese stocks fell nearly 2 percent to two-monthlows, suffering their worst one-day loss in four months, after aperceived lack of details on highly-awaited reforms from a keyCommunist Party policy meeting.

"The announcement may have been a small disappointment formarkets since so much attention was placed on the release," saidanalysts at SEB in a client note.

Emerging sovereign debt spreads widened by 1 basispoint to 359 basis points over U.S. Treasuries.

In currency trading, India and Indonesia are two of the"fragile five" economies seen most vulnerable to higher U.S.Treasury yields, along with Brazil, South Africa and Turkey.

"Investor concern about macro-fundamental deterioration ...and pressure on emerging market external accounts in the midstof U.S. removal of policy accommodation continue to provideheadwinds," said Morgan Stanley analysts in a client note.

The Turkish lira also hit two-month lows afterTurkey's current account deficit came in at a wider thanexpected $3.28 billion in October.

The Romanian leu hit one-month lows and theHungarian forint hit six-week lows against the euro,and the rouble hit two-month lows against itseuro-dollar basket.

The Czech crown hovered at 27 per euro, the targetset by the central bank following crown-selling interventionlast week. The central bank will likely hold the crown at thatrate for at least the next 18 months, governor Miroslav Singerwas quoted as saying on Wednesday.

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

View Comments