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EMERGING MARKETS-Stocks slide on contagion fears as Evergrande plumbs decade lows

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·3 min read
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* S.African rand hits two-week low

* Average yield for EM local currency bonds at April 2020 high

* Polish zloty slips on central bankers' views on rates

By Susan Mathew

Sept 16 (Reuters) - Emerging market stocks fell 0.8% on Thursday, putting them on course for their worst week in a month on investor fears of contagion from a potential downfall of embattled Chinese property developer Evergrande.

Shares in China's no. 2 property developer lost 6.4%, taking losses so far this week to near 30%, after it applied to suspend trading of its onshore corporate bonds following another downgrade.

Hong Kong stocks dropped to their lowest this year, and mainland shares gave up more than 1% as other property stocks also sold off.

MSCI's index of EM shares has fallen every day this week due to China's increasing business regulations, weak economic data and Evergrande woes.

Given that the impact on China's credit market has been focused on the property sector and only on those names that have had trouble raising funds, the impact on other sectors as well as broader emerging markets should be limited, said Eugenia Fabon Victorino, head of Asia strategy at SEB in Singapore.

"But it would really depend on how this is resolved. Historically the resolution of defaults in China has been quite fast although there has been a process wherein the domestic stakeholders have a limited fallout," she said.

"Limiting that will also limit the risk of this becoming a systemic risk... The big banks in China are comfortably above the regulatory capital ratios, and should be able to take the hit."

Elsewhere, Russia's rouble fell slightly after hitting 11-week highs on Wednesday. Russian President Vladimir Putin said he would have to spend "a few days" in self-isolation after dozens of people in his entourage fell ill with COVID-19, the TASS news agency reported.

Turkey's lira was flat. Turkey's central bank said it has formed a platform to expand research into the potential benefits of a digital currency, with results to be announced in 2022.

South Africa's rand dipped to two-week lows, extending declines after a drop in July retail sales added to evidence that the economy got off to a shaky start in the third quarter.

The Polish zloty hit two-week lows as investors digested statements regarding the direction of interest rates in the country. One central banker saw a likely rise while another said a hike was not necessary at this point. Earlier this month, the central bank left the key rate unchanged at 0.1%.

In the debt market, the average yield for EM local currency bonds is now almost 5.1%, the highest since April 2020.

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

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 Emelia Sithole-Matarise)