EMERGING MARKETS-Currencies fall as dollar firms, fears of Russia sanctions hit stocks

* Dollar near 2-year high, hurts EM currencies

* Fed minutes from March meeting eyed

* Russian stocks, rouble fall on sanction fears

* Sri Lanka dollar bonds drop on political crisis

By Shreyashi Sanyal

April 6 (Reuters) - Emerging market currencies fell against a stronger dollar on Wednesday on worries over aggressive actions by the U.S. central bank to curb inflation, and as the anticipation of more Western sanctions on Russia pressured stocks.

The MSCI's index for emerging market currencies dropped 0.2% for the second straight day, as the dollar remained perched near two-year highs.

Fed Governor Lael Brainard said she expects a combination of interest rate hikes and a rapid balance sheet runoff to bring U.S. monetary policy to a "more neutral position" later this year, with further tightening to follow as needed.

Investors are now watching out for the minutes from the Fed's March meeting later in the day.

"What now matters is what the Fed does in May and what signals it sends out regarding interest rates this year," said Antje Praefcke, FX and EM analyst at Commerzbank.

Investors are questioning whether the U.S. central bank will go above a 25 basis point rate hike next month and repeat it for the remainder of the meetings through 2021, Praefcke added.

Emerging markets were also jittery as the United States and its allies prepared new sanctions on Moscow over civilian killings in Ukraine.

The MSCI's index for EM stocks fell 1.1%, with Russian stocks down 0.7% in early trading. Russia's rouble dipped 0.2% against the dollar in Moscow.

Asian emerging markets took cues from declines in China, with both stocks and the onshore yuan falling on concerns over a worsening economic growth outlook after Shanghai extended its coronavirus lockdown.

A survey showed activity in China's services sector contracted at the sharpest pace in two years in March due to a surge in coronavirus cases.

South Africa's rand and Turkey's lira dropped about 0.1% in choppy trading.

Commodity-exposed South African stocks shed 0.2%, weighed by miners after prices of most industrial metals dropped on Wednesday.

Many emerging and frontier markets apart from Russia and Ukraine have also been embroiled in various states of instabilities, with countries including Pakistan, Sri Lanka, Peru, and Lebanon seeing anti-government protests, political turmoil and financial crises.

Sri Lanka's 2027 sovereign bonds dropped more than 3 cents in the dollar on news President Gotabaya Rajapaksa would not resign despite protests against his handling of the country's worst economic crisis in decades.

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Amy Caren Daniel)