EMERGING MARKETS-Bank sector recovery hopes spark rally

                                
 * Emerging shares, bonds jump on bank sector recovery hopes
                                
 * Hungarian forint leads emerging Europe FX gains
                                
 * Gains for Polish zloty seen as foreign debt fears ease
                                
    
                                
 By Sebastian Tong
                                
 LONDON, May 19 (Reuters) - Emerging assets and currencies
rallied on Tuesday as reports that major U.S. banks had applied
to repay government bailout funds stoked hopes of a global
economic turnaround and fuelled investor risk appetite.
                                
 The Hungarian forint led the rebound in emerging European
currencies after the International Monetary Fund (IMF) and the
European Commission (EC) moved to allow Hungary to raise its
budget deficit this year and next.
                                
 Though fresh economic data is scarce this week, optimism is
growing that the global economy downturn has seen its worst.
World Bank President Robert Zoellick said the pace of economic
contraction appeared to be easing and predicted the beginning of
a recovery at the end of the year. [ID:nLJ936606]
                                
 Investor confidence in Germany, Europe's largest economy,
rose to its highest in nearly three years in May. [ID:nLJ942330]
                                
 Emerging shares <.MSCIEF> followed their global peers
<.MIWD00000PUS> higher for the third session in a row, jumping
2.2 percent by 1045 GMT to their highest levels since early
October while emerging sovereign debt spreads <11EMJ> tightened
7 basis points to trade at 479 bps over U.S. Treasuries.
                                
 "Many investors had been slow to jump into the rally of the
last few weeks and are now anxious not to miss out. The fact
there is little new data to provoke these gains suggests there
is strong pent-up demand for risky assets," said Beat
Siegenthaler, TD Securities chief emerging markets strategist.
                                
 Sources told Reuters that Wall Street giants such as Goldman
Sachs <GS.N> and Morgan Stanley <MS.N> had applied to repay the
billions of dollars they borrowed under the U.S. government's
Troubled Asset Relief Program. The reports were seen as a sign
that the health of the global financial system had stabilised,
an impression reinforced by talk that Britain had sounded
potential buyers of its bank stakes. [ID:nLJ667325]
[ID:nLI330969]
                                
 "Many people had been surprised by the speed and severity of
the run-up. These gains could be reversed but probably only in
three to six months time," said Siegenthaler.
                                
 
                                
 IMF LEEWAY
                                
 Hungarian shares <.BUX> and Israeli stocks <.TA25> hit their
highest in seven months while Romanian equities <.BETI> powered
some 6 percent higher. 
                                
 Russia's dollar-denominated RTS Index <.IRTS> rose over 4
percent, boosted by oil which rose near $60 a barrel.
                                
 Stronger risk appetite also drove demand for high-yielding
currencies. South Africa's rand, an emerging markets bellwether,
rose 0.6 percent against the dollar <ZAR=>, holding firm despite
a warning from its central bank governor over growing job
losses. [ID:nWEA3344]
                                
 South Africa is also expected to price a 10-year Eurobond of
at least $1 billion later in the day. [ID:nLJ168777]
                                
 Hungary's zloty led broader emerging currency gains to rise
over 1.2 percent against the euro <EURHUF=>, after the IMF and
the EC agreed to let Budapest raise its budget deficit and avoid
the need for further austerity measures that might have stifled
its ailing economy further. [ID:nLJ168777]
                                
 Poland's zloty was also another strong gainer, rising 0.9
percent to break through the key 4.40 resistance level versus
the euro <EURPLN=>.
                                
 A central bank report that the country would have no problem
rolling over some 63.9 billion euros in external debt maturing
this year has bolstered sentiment. [nLI526184] 
                                
 "Signs of lower-than-expected gross external financing needs
should be supportive for the zloty in the medium term ... Poland
could face a period of further zloty appreciation in the
coming months," Citi said in a client note.
                                
 The weakness of the zloty -- which has fallen over 5.7
percent this year -- has also paved the way for an improvement
in the country's foreign trade and current accounts by making
its exports more competitive, Citi added.
 Polish credit default swaps (CDS) eased, with the cost of
protecting against sovereign debt default for five years falling
to around 160 bps from 170 bps late Monday, data from CMA
DataVision showed.
                                
 Meanwhile, Indian shares <.BSESN> gave up gains of 4.5
percent as investors took profit after a 17 percent surge on
Monday following a convincing win for the ruling coalition.
                                
 Turkish markets are closed for a holiday.
                                
 (Reporting by Sebastian Tong; Editing by Ruth Pitchford)