* Emerging shares struggle to extend recent gains
* Shekel strongest in over 3-1/2 years post-rate hike
* Belarussian rouble allows 10 percent devaluation
By Sebastian Tong
LONDON, March 29 (Reuters) - Emerging markets struggled on
Tuesday to extend recent gains but Israel's shekel rose to its
strongest level in over 3-1/2 years a day after a surprise hike
in its benchmark lending rate.
Belarus allowed an effective 10 percent devaluation of its
rouble <BYR=> after its foreign exchange reserves fell 20
percent in the first two months of the year as the central bank
battled to shore up the currency.
The benchmark equity index eked out a 0.2 percent gain by
1200 GMT while emerging sovereign debt <11EMJ> narrowed 1 basis
point to trade at 259 bps over U.S. Treasuries, its tightest in
three weeks.
Despite continued uncertainty over the Arab world and
Japan's radiation containment efforts, investor sentiment
appears to have stabilised after a selloff earlier in the year.
"Problems in the rest of world -- Libya and Japan -- are
still on the back-burner but they are not damaging market
sentiment," said Nigel Rendell, senior emerging markets
strategist at RBC Capital Markets.
"Most emerging markets have staged a reasonable rally in the
last week or more. We had a big sell-off at the start of the
year -- now people think that was a little bit too much."
Emerging European shares <.TRXFLDEEPU> slipped 0.6 percent,
down from Monday's 9-1/2 week highs.
Czech shares <> eased 0.4 percent, retreating from recent
six-week highs, while Polish shares <> slipped 0.7 percent
after reaching their highest levels in 33 months on Monday.
Romanian shares <> fell over 1 percent from the
previous day's one-year peak while Russian shares <>
tumbled 1.4 percent, down from recent 32-month highs.
ISRAEL SURPRISE
With a few notable exceptions, most emerging currencies
traded weaker.
The Turkish lira <TRY=> dipped for third straight day
against the dollar while Romania's leu slid for the second
successive session, down further from Friday's one-year high
against the euro <EURRON=>.
Hungary's forint softened a touch after Monday's near
year-high but Poland's zloty was unchanged near a three-week
high against the euro <EURPLN=>.
Belarus widened the trading band of its rouble, effectively
devaluing the unit by 10 percent to help it cope with a foreign
trade gap widely seen to be unsustainable. []
"A 10 percent devaluation, in effect, on its own is not
really a game changer, as the sheer size of the current account
deficit implies a fundamental and structural lack of
competitiveness of the economy," wrote Tim Ash, head of CEEMEA
Research at RBS.
"(A) more fundamental reform/restructuring of the economy
... (is) required to ensure the balance of payments becomes
sustainable on a longer term basis, otherwise Belarus is likely
to suffer periodic balance of payments crises over the next few
years."
Meanwhile, Kenya's shilling <KES=> was up for the third day,
firming 0.2 percent to its strongest against the dollar in
nearly three weeks. The country's central bank surprised markets
last week with an interest rate hike.
A surprise rate hike also pushed Israel's shekel <ILS=> to
its highest against the dollar since October 2008.
The Bank of Israel raised its benchmark rate by half a
percentage point to 3 percent, fuelling expectations that
monetary policymakers will remain aggressive this year.
(Additional reporting by Carolyn Cohn; Editing by Catherine
Evans)
