* Emerging stocks fall 0.7 pct on 4 pct Shanghai losses
* Turkish equities rise 0.8 pct after rate cut
* Emerging debt yield spreads rise 8 bps vs Treasuries
By Sujata Rao
LONDON, Aug 19 (Reuters) - Emerging equities slipped 0.7
percent on Wednesday, unnerved by further steep losses on
Chinese stocks, though Turkish markets resisted the weaker trend
thanks to another half-point cut in interest rates.
MSCI's emerging equity index <.MSCIEF> is down almost 3
percent this month, touching 3-1/2-week lows earlier in the week
after poor U.S. data and a near-6 percent fall in Chinese
stocks. But the index is still up 45 percent year-to-date.
Analysts said recent positive economic data in many
developed and emerging economies was helping contain losses.
Strong business sentiment numbers from Germany on Tuesday
helped markets to steady off Monday lows, while forecast-beating
economic numbers from South Africa and Russia plus an interest
rate cut in Turkey to a record low 7.75 percent also helped
lift sentiment somewhat on emerging markets.
All this is helping insulate them from China, where stocks
are 20 percent off this year's peaks, mainly on fears of tighter
liquidity going forward.
"China is clearly contributing to the gloomier mood these
days but for now markets seem to think it's a correction
specific to China," said Societe Generale emerging markets
strategist Gaelle Blanchard.
"But if you look at the extent of the rally in recent
months, even if you get good economic data, people wonder if it
is justified to see further gains on markets, especially equity
markets," she said, adding that thin summer liquidity is also
constraining moves.
Despite their recent weakness Chinese stocks have gained 53
percent year to date.
MORE CUTS
The Istanbul stock market <> rose 0.8 percent, having
risen 65 percent year-to-date and 20 percent since the start of
July, as expectations grew for more cuts in interest rates and
Turkish company results were mostly better then expected.
The central bank has now more than halved interest rates
since last November, but it also said further measured cuts
would be needed from the current record low of 7.75 percent if
no significant signs of economic recovery appeared.
Bond yields were steady after falling to historic lows in
recent weeks. The lira, which firmed 0.8 percent on Tuesday
ahead of the rate decision, fell half a percent <TRY=>.
"In Turkey, markets are ready to accept more rate cuts,"
SG's Blanchard said, citing inflation at a 40-year low. "But if
the central bank continues to be very dovish we may see a
reaction on the lira as well."
South African stocks fell back 0.8 percent <.JTOPI> after
gaining on Tuesday thanks to better-then-expected GDP numbers.
But analysts say the country's assets are weighed down by other
more recent indicators which suggest the economy will lag
emerging market peers.
They say the outlook, as well as expectations the central
bank could be forced to cut interest rates further, was likely
to weigh on the rand, which has lost over 5 percent after
gaining 20 percent in the first half of 2009.
The rand fell almost one percent against the dollar on
Wednesday though it resisted Monday's one-month lows <ZAR=>.
In central Europe the Hungarian forint dropped 0.9 percent
to the euro <EURHUF=> and the Polish zloty fell 0.6 percent
<EURPLN=>.
One trader noted that Poland, whose stronger fundamentals
normally make it more resilient than neighbouring Hungary, had
also fallen sharply, suffering from heavy positioning. Others
cited the closing of positions against the Czech crown.
"The ZEW yesterday was very positive for the central
Europeans but now everything is getting hit. The forint has the
interest rate protection at least," the trader said, referring
to the country's 8.5 percent interest rate.
Credit default swaps (CDS) markets reflected the risk
aversion, with Turkish five-year CDS climbing almost 7 basis
points to 221.9 bps, Hungary rising 5 bps and Poland 3 bps,
according to CMA DataVision.
Debt markets saw yield spreads rise 8 basis points to 384
bps on the EMBI PLus index <11EMJ> versus slightly stronger
Treasuries.
(Reporting by Sujata Rao; editing by Patrick Graham)
