* Emerging stocks drop 1 pct, but debt spreads tighten
* Zloty at 3-mth high, Polish c.bank warns against uptrend
* Ukraine 5-yr CDS trade around 500 bps after rate cut
By Carolyn Cohn
LONDON, Aug 10 (Reuters) - Emerging stocks fell 1 percent to
an eight-day low on Tuesday, as caution about Federal Reserve
policy dented risky assets, but the Polish zloty hit fresh
three-month highs, prompting a central bank warning.
Emerging assets have had a good run in the last few weeks,
boosted by the easing of the euro zone sovereign debt crisis and
a refocus on strong domestic fundamentals.
However, speculation has been growing that the U.S. Federal
Reserve will at its meeting later on Tuesday signal a need for
more stimulus to support U.S. growth or possibly restart asset
purchases, known as quantitative easing.
Chinese stocks <> also fell 2.9 percent after weak
import data spurred concerns domestic demand was cooling faster
than previously thought.
"Everywhere is down today, reflecting a general pullback in
risk appetite which is hitting emerging markets," said Neil
Shearing, senior emerging markets economist at Capital
Economics.
The MSCI emerging equities index <.MSCIEF> dropped 1 percent
to an eight-day low and the Thomson Reuters Emerging Europe
index <.TRXFLDEEPU> fell 0.77 percent.
Emerging sovereign debt spreads tightened by 2 basis points
to 261 bps over U.S. Treasuries <11EMJ>, however, and are
trading around their narrowest in three months in the absence of
new supply over the quiet August period.
The South African rand eased from 2-1/2 year highs against
the dollar <ZAR=> set on Monday, as public sector unions
threatened a prolonged strike. []
As the zloty hit a fresh three-month high against the euro
close to 3.95 <EURPLN=>, Polish central bank governor Marek
Belka said he hoped the currency's appreciation trend would not
be too strong. []
Poland's currency has been volatile in recent months and the
central bank has intervened both to buy and sell zloty.
"Poland is likely to hike interest rates as soon as Q4 this
year," said analysts at ING in a client note.
"Should this expectation build, euro/zloty may well re-test
its April (3.80) mark."
Debt insurance costs climbed slightly in emerging Europe.
Ukraine's five-year CDS rose to 505.4 bps, according to CMA
DataVision, after dipping to a four-month low below 500 bps on
Monday, when the central bank cut its key discount rate by 75
basis points to 7.75 percent, the third cut this year.
Analysts see inflationary pressures in Ukraine.
"Inflation will go up," said Shearing. "We will see the
effect from the gas price rise and there is the food angle too."
Ukraine raised domestic gas prices this month and traders
say the drought-hit country is holding up wheat exports.
[]
Russian 5-year CDS also ticked up as oil prices weakened and
investors focused on the smog in Moscow and the drought, which
prompted Russia last week to ban grain exports.
"The drought will have an impact on the Russian economy and
inflation and food prices in particular, and I wouldn't want to
underplay that. But comparisons with the food price shocks of
2007-2008 are misplaced," said Shearing.
"Part of the problem back then was that the Russian economy
was operating above potential but now it is operating below
potential and it's difficult to see the food price inflation
leading to wage inflation and feeding through massively into
core inflation."
(Additional reporting by Sujata Rao; Editing by Susan Fenton)
