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EMERGING MARKETS-Stocks, currencies set for fourth straight week of gains

·3 min read

By Susan Mathew

Aug 12 (Reuters) - Most emerging market stocks and currencies rose on Friday and were on course to post fourth straight weekly gains, although COVID-19 worries in China capped gains for stocks.

In a week where sentiment was centred around U.S. inflation data and its implications for the Federal Reserve's policy stance, riskier assets fared well as softer-than-expected data spurred bets that the central bank will not have to maintain its aggressive pace of hikes.

Higher U.S. borrowing costs have in the past caused currency crises, as it lessens the appeal for riskier assets of emerging markets. The risk remains as the Fed still has some way to go before it can start cutting rates.

"The fact that inflation not only decelerated in the U.S. but at a faster pace than the consensus forecasts was a double win and risk assets are feeling the benefit," said Craig Erlam, senior market analyst - UK & EMEA at OANDA.

China's yuan inched higher against the dollar and looked set for its biggest weekly gain in two months with the onshore yuan at 6.73 per dollar.

But mainland China stocks slipped on Friday as COVID-19 cases rose in the country, raising fears this could hamper the world's second largest economy's slow and uneven economic recovery.

South Africa's rand firmed 0.6%, while Mexico's peso erased some gains made after the central bank hiked its key interest rate by 75 basis points to a record 8.5

MSCI's index of emerging market currencies was on track to rise 0.3% on the week. While its stocks counterpart was at six-week highs, looking to end the week up 1.4%.

Turkey's lira was flat against the dollar on Friday. Data showed Turkish industrial production expanded 8.5% year-on-year in June, exceeding a Reuters poll forecast.

"The activity data suggest that Turkey's economy is likely to have recorded another quarter of solid growth in Q2," said Jason Tuvey, senior emerging market economist at Capital Economics.

But given Turkey's high inflation and wide current account deficit, coupled with an unconventional monetary policy, the lira remains "highly" susceptible to sharp and disorderly falls, Tuvey said.

Hungary's forint was seen ending the week lower, underperforming central and eastern European peers, as oil supply worries had hit sentiment earlier in the week.

Kenyan eurobond prices rose to their highest levels since early June, as vote counting from Tuesday's general election continued, while Argentine assets were eyed after a 950 basis point hike in the key interest rate overnight.

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

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich)