* Stocks fall 1 pct; extend losses on China policy tightening
* Lacklustre corporate earnings, Obama bank fee talk weigh
* Bond mkts digest $11 bln sovereign supply; Israel to issue
* Venezuela bonds rise; Argentina EMBI spreads at 1-mth high
By Sujata Rao
LONDON, Jan 13 (Reuters) - Emerging equities extended losses
to a one-week low on Wednesday after Chinese policy tightening
and disappointing corporate results soured risk appetite but
hopes of a loan deal with the IMF helped Turkey buck the trend.
Prices for oil and metals, the mainstay of many emerging
economies, have fallen as investors worry that Beijing's efforts
to tighten liquidity -- it raised reserve ratios on Tuesday
after raising some t-bill yields -- will dampen commodity and
other import demand.
The benchmark emerging equity index <.MSCIEF> fell one
percent after losing 0.6 percent on Tuesday. The biggest loser
was China, where the Shanghai index fell over 3 percent, with a
knock-on effect on many Asian bourses.
"The Chinese tightening is weighing on sentiment plus we
also have political noise -- there is talk of (U.S. President
Barack) Obama taking $120 billion from the banks and there is
going to be congressional testimony on that today," said Knight
Libertas analyst Richard Segal.
Obama is expected to announce plans to raise cash from major
U.S. banks to cover expected losses from a taxpayer-funded bank
bailout as public anger grows over big bank
bonuses.[]
The earnings season so far has been lacklustre and market
direction is likely to be driven by forthcoming results,
including Intel Corp and JPMorgan.
Markets have attempted to consolidate some of the earlier
sharp losses, with South Africa's Johannesburg stock index up
0.3 percent and the rand firming half a percent off the two-week
lows plumbed in the previous session to the dollar <ZAR=>.
Rand bonds <ZAR157=> however extended losses, with prices
dipping to the lowest since Oct 2009 after the first 2010 bond
auction drew muted interest.
"The reaction to China's increase in reserve requirements is
based on the fact that China is often the most important client
for South African exporters of raw materials," said Alvise
Marino, emerging markets analyst at IDEAGlobal in Johannesburg.
Analysts say also the rand is due a correction, having
rallied over 20 percent to the dollar last year.
Eastern European stocks were marginally weaker though
currencies firmed a touch, with the zloty up 0.4 percent to the
euro <EURPLN=>, helped by privatisation plans.
The regional winner was Turkey where stocks rallied one
percent <>, though the lira pared most of its early gains,
failing to sustain a rise beyond the key technical level of 1.45
per dollar <TRY=>.
Markets are eager for a standby deal with the International
Monetary Fund (IMF). Prime Minister Tayyip Erdogan however
dampened some of these hopes, saying the loan was not
indispensable.
MARKETS DIGEST FRESH SUPPLY
Emerging bonds outperformed, with the EMBI Plus index of
sovereign bonds <11EMJ> showing yield spreads over U.S.
Treasuries tightening 6 basis points to 260 basis points --
around the lowest since June 2008.
Indonesia sold $2 billion in bonds on Tuesday, joining
Turkish, Philippine, Polish and Mexican issues and bringing
sovereign supply so far this year to almost $11 billion.
Traders said the supply had been well-digested with
expectation of more emerging issues on the way.
"Markets are generally tighter across the board though we
are keeping an eye on (U.S.) Treasuries," one bond trader in
London said, referring to Treasury yields which have risen about
0.4 percent over the past month on the 10-year sector.
"If we see a pronounced (Treasury) sell-off, it will be
interesting to see how emerging markets react but there was good
appetite for the issues so people still seem attracted to the
asset class."
Israel became the latest emerging sovereign to announce
eurobond plans, saying it would issue the equivalent of $1
billion this year, possibly in euros [].
Elsewhere on bond markets, Venezuela continued to benefit
from last week's currency devaluation, with its portion of the
EMBI Plus seeing yield spreads narrow 12 bps to 809 versus
Treasuries -- the tightest spread since Sept. 2008.
Markets are awaiting news on Argentina, after a U.S. judge
froze accounts held in the United States, a move that may
jeopardise or delay plans for a $20 billion debt swap. The news
has pushed Argentina's portion of the EMBI Plus to the widest in
a month after widening 43 basis points on Tuesday.
[]
"The debt swap will go ahead but it will maybe take a month,
and we were expecting to have the exchange offer this week,"
Knight Libertas' Segal said.
(Additional reporting by Carolyn Cohn in London and Stella
Mapenzauswa in Johannesburg; Editing by Ruth Pitchford)
