Emerging Markets-Ukraine FX up amid central bank split

                                
 By Sebastian Tong
                                
 LONDON, May 23 (Reuters) - Ukraine's hryvnia firmed on
Friday, a day after the central bank fell into disarray over the
currency's revaluation, while the Slovakian crown set another
new record against the euro as anticipation over it's conversion
rate to the single currency continued to build.
                                
 The hryvnia <UAH=> rose 0.85 percent to 4.72 against the
dollar, a day after Ukraine's central bank split over a late
Wednesday decision to revalue the currency to 4.85.
                                
 The move to strengthen it from 5.05 to the dollar was to
fend off growing inflationary pressures.
                                
 "There may be further appreciation pressure in the short
term but in the longer term, the pressure from Ukraine's current
account deficit will pull the currency back," said Jon Harrison,
a forex strategist at Dresdner Kleinwort.
                                
 "This kind of uncertainty is clearly negative. The central
bank needs to work out what they want to do."
                                
 The hryvnia, which has gained 7 percent since the start of
the year, has lost more than 3 percent of its value since
Wednesday.
  Five-year Ukrainian credit default swaps (CDS) -- which
insure against a debt default by the sovereign -- widened 7
basis points to 291 bps as the monetary policy dispute
threatened to widen into a political row. [ID:nL23673863]
                                
 "Institutional investors want to put money in Ukraine that
they cannot with this degree of institutional uncertainty," said
Michael Ganske, emerging markets research head at Commerzbank. 
The hryvnia was among broadly firmer local currencies,
including Slovakia's crown <EURSKK=>, which rose 0.30 percent to
a new high of 31.03 against the euro.
                                
 "There is a lot of expectation that Slovakia will enter the
euro at a strong level. The only problem is pressure from
inflation. It's a problem everywhere but it's clearly more of an
immediate problem if you are about to adopt the euro. You want
to avoid a situation like Slovenia where they joined and then
inflation rose very fast," said Dresdner's Harrison.
                                
 The Romanian leu <EURRON=> was 0.10 percent firmer after the
president said the country was on target to adopt the euro in
2014 as long as it undergoes further fiscal reforms.
[ID:nL23123129]
                                
 South Africa's rand <ZAR=> was among the few currency
losers, shedding 0.56 percent to trade at 7.65 against the
dollar amid growing concerns over anti-immigration violence in
the country. [ID:nL23157769]
                                
 Inflation worries continue to cast a pall over the markets
with oil prices hovering near record highs. Investors are
fearful that consequent tighter monetary policy will further
deepen a global economic slowdown.
  "Tighter lending conditions and higher energy costs will
inevitably put additional strain on the corporate sector. This
is also visible on a number of emerging markets where we
expect the higher oil prices to take its toll on external
accounts and on the health of a still relatively strong corporate
sector," said Elisabeth Gruie, BNP Paribas currency strategist.
The benchmark emerging stocks index <.MSCIEF>, which hit a
year high this week, continued to retreat. The index slipped 0.92
percent to 1,210.69 at 1034 GMT while emerging sovereign debt
yields <11EMJ> -- an indicator of risk appetite -- widened 2
basis points to trade at 253 bps over U.S. Treasuries.
  (Additional reporting by Peter Apps)