UPDATE 1-MSCI EM currency index hits record high on skidding dollar, perky yuan

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LONDON, May 7 (Reuters) - MSCI's emerging market currency index sailed to a new record high on Friday, lifted by the dollar skidding to a multi-month low in the wake of disappointing jobs data.

The developing markets currency benchmark, which is dominated by Asian currencies such as China's yuan , jumped as much as 0.6% to 1,737.80. China's yuan strengthened more than 0.5% in offshore trading on Friday to hit its best level in 2-1/2 months.

The index is up 1% since the start of the year after recording more than 3% gains in 2019 and 2020.

Major banks are divided over the outlook for emerging market currencies after a year-end euphoria saw investors pile in thick and fast.

"We have been reducing EM risk in recent weeks, and we hold UW (underweight) FX given the shrinking list of attractive idiosyncratic opportunities and an upcoming period of EM growth underperformance," Luis Oganes at JPMorgan wrote in a note to clients on Thursday.

Meanwhile BlackRock recently upgraded local currency bonds to overweight, saying underperformance year-to-date had made valuations more appealing, especially against a backdrop of Treasury yields and the dollar stabilising.

Investment bank Morgan Stanley has also turned outright bullish on local currency-denominated emerging market bonds lately.

South Africa's rand has emerged as the best performing currency among major emerging markets since the start of the year, up 3%, while Turkey and Argentina have seen their currencies tumble some 10% over the same period.

(Reporting by Karin Strohecker Editing by Rachel Armstrong, William Maclean)