* Emerging stocks fall 1.7 pct to 1-month lows
* Central European bourses down over 2 pct; yields up
* Forint at 2-month low
By Sujata Rao
LONDON, April 28 (Reuters) - Contagion from the euro zone
periphery swept through emerging markets on Wednesday,
triggering a 1.7 percent fall on equities while sovereign bond
yield spreads over Treasuries hovered at one-month highs.
The ripples from Greece have spread as far afield as India
and Mexico where shares fell sharply in the wake of a 30 percent
jump in the VIX volatility index and the dollar's rise to
11-month highs against a basket of major currencies.
The global selloff started on Tuesday after a triple-notch
ratings downgrade took Greece into "junk" territory while
Portugal received a two-notch ratings cut. Greek ratings are now
below those of Iceland and just above Latvia, both of which have
been kept afloat by IMF rescue packages.
MSCI emerging stocks extended the previous session's 1.5
percent losses, falling another 1.8 percent <.MSCIEF> to
one-month lows.
Emerging sovereign bonds on the EMBI Plus index <11EMJ> saw
yield premiums over U.S. Treasuries widen 3 bps to 267 bps. The
premium rose 20 bps on Tuesday as Treasury yields dropped.
"This is classic risk aversion when everything is falling,
apart from the dollar and Treasuries," said Gyula Toth, emerging
markets strategist at Unicredit in Vienna. "When that happens
there is nowhere else to hide."
Central European assets bore the brunt of the selling. Stock
markets in Budapest, Warsaw, Prague and Bucharest plunged over 2
percent while bond yields spiked -- Hungarian yields for
instance jumped 30-40 bps across the curve.
Losses were heavy elsewhere also. Oil's slide of 3 percent
so far this week pushed Moscow <> down 2 percent while
mining-heavy Johannesburg shares fell 2.3 percent <.JTOPI>.
In Asia, India fell 1.7 percent <>, Korea <> and
Hong Kong lost 0.9 percent and 1.5 percent <> respectively.
Emerging assets have been largely resilient to the woes of
debt-laden Greece and Portugal, with some sectors such as local
central European bonds actually said to have benefited from
crossover flows from the euro zone periphery.
But Toth said more falls could ensue now in emerging Europe
where Western European banks have a big presence.
"Sooner or later, banks that hold Greek risk will have to
take credit losses and there could be an indirect impact on
Eastern Europe...if the parent banking sector takes a hit via
Greek exposure," he added.
Credit default swaps across central Europe rose 5-10 bps
across the board, with Hungary's five-year CDS quoted up six
basis points at 223 bps while Turkey rose 8 bps to 192 bps.
But this pales in comparison with a 50 bps jump in Greek
CDS, which are now quoted over 900 bps for five years,
surpassing Venezuela which was considered the riskiest of all
the sovereigns tracked by CMA DataVision.
For the time being however, the emerging sovereign with one
of the highest public debt levels, Hungary, was being punished
the hardest, though domestic factors contributed.
The forint fell 0.6 percent to its lowest in more than two
months <EURHUF=> against the euro, a day after suffering its
biggest one-day fall in almost a year.
Sentiment on Hungary was hurt after Prime Minister-elect
Viktor Orban called for central bank governor Andras Simor to
quit, calls that were repeated by members of his party.
"It seems the relationship between the central bank and the
government is not going to be too good and the market does not
like that," Toth of Unicredit said.
Other regional currencies fell to a lesser extent, the zloty
down half a percent to seven-week lows <EURPLN=> and the Czech
crown falling 0.3 percent to the euro <EURCZK=>.
A Polish central bank meeting is expected to leave rates
unchanged but markets are waiting for the post-meeting statement
to see if any rate cuts were discussed.
The Turkish lira eased to a three-week low against the
dollar <TRY=> while stocks fell 1.5 percent <> but bond
prices held up, thanks to a 1.5-billion lira injection from the
central bank.
That action helped benchmark 2-year yields recover to around
9.25 percent after surging to 2010 highs around 9.40 percent.
Many analysts say that after the initial knee-jerk reaction,
the better emerging credits could see some stabilisation
especially once the IMF rescue package for Greece comes through.
"It's going to affect sentiment in the short term towards
emerging markets but it's not going to affect the long-term view
-- the debt levels in Greece are extremely high, that's not the
case in emerging markets," said Daniel Tubbs, who co-manages $2
billion in emerging equities at Blackrock.
(Additional reporting by Carolyn Cohn; Editing by Ron Askew)
