By Susan Mathew
March 9 (Reuters) - Emerging market stocks were on the cusp of correction territory on Tuesday although Turkey's lira fought back from a 3% plunge and South Africa's rand jumped 1.5% after its economy contracted less-than-expected in the fourth quarter.
Emerging markets have been buffeted in recent weeks with worries about a possible post-COVID rebound in inflation and climbing U.S. Treasury yields lifting the dollar.
Another small 0.2% dip on Tuesday left MSCI's 27-country EM stocks index down almost 10% - the technical definition of a correction - from highs hit in February.
The loss is also more than double the 4.6% MSCI's world stocks index has lost over the same period.
"U.S. rates volatility remains the central focus for investors, and EM assets continue to face headwinds as a result," said Ilya Gofshteyn, senior EM macro strategist at Standard Chartered.
"The Federal Reserve has indicated comfort with the recent increase in yields, and investors still signal concern on inflation."
EM stocks have recovered more than 70% from pandemic-lows hit last March, and are about 12% higher from last year's pre-pandemic highs, but the recent sell-off has slowed the pace.
JPMorgan's EM hard currency debt index has marked its worst start to the year in 25 years.
On Tuesday, MSCI's index of EM currencies touched another three-month low before cutting some losses as the dollar weakened against a basket of major rivals.
Turkey's lira jumped as much as 1.7%, in what could be its second day of gains in 12. Monday's plunge pushed the currency's losses over that period to double digits, bringing yearly losses to 3.1%.
The currency has given back almost half its gains made post the appointment of a new finance minister and central bank governor in November who oversaw a series of rate hikes, lifting a sharply depreciating lira.
South Africa's rand hit session highs, at 15.34 per dollar, after data showed gross domestic product expanded by 6.3% quarter on quarter on basis in the fourth quarter.
On a year-on-year basis, GDP contracted a less-than-expected 4.1% in the three months to the end of December, compared to a revised 6.2% contraction in the prior quarter.
But even surprisingly strong growth in the closing quarter is only going to support the rand short term at best, said Commerzbank EM and FX analyst Elisabeth Andreae as the growth outlook remains weak.
Russia's rouble rose 0.7% on the interbank market as oil prices recovered. But the currency fell 0.1% on the Moscow exchange in catch-up trade after a day's holiday.
Overnight, Brazil's real sank 3.2% to hit 10-month lows after a Supreme Court judge annulled the criminal convictions against former leftist President Luiz Inacio Lula da Silva and restored his political rights, opening the door for Lula to run in presidential elections next year.
For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX
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For RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; editing by David Evans)