* Emerging stocks hit nr-4-yr lows,spreads widest in 6 yrs
* Russia 5-yr credit default swaps in distressed territory
* S&P cuts Russia's ratings outlook to negative
(Updates prices, adds fresh quote, ratings news)
By Carolyn Cohn
LONDON, Oct 23 (Reuters) - Emerging stocks continued recent
sharp falls, debt spreads gaped and Russia's credit default
swaps moved into distressed territory on Thursday as investors
exited emerging markets.
Emerging markets have switched from bystander in a U.S.
sub-prime crisis to centre stage in a panic about global growth
and the health of global financial institutions.
Cash-strapped Western banks are retrenching their positions
in emerging markets, hedge funds are unwinding positions to
cover redemptions and currency volatility is eroding the value
of emerging market assets.
Falling commodity prices have hit commodity producers like
Russia and Brazil, amid slowing growth prospects for economic
powerhouse China.
"It's extreme deleveraging, it's not any particular country
-- nothing is safe," said Beat Siegenthaler, chief strategist,
emerging markets at TD Securities.
"It's very difficult to change people's expectations. All we
can hope for in the next few days are IMF programmes."
Iceland, Hungary, Ukraine, Serbia, Turkey and Belarus are in
various stages of talks with the International Monetary Fund.
Asked about a market rumour that the IMF is planning a $1
trillion bail-out package for emerging markets, a senior IMF
official in central Europe told Reuters: "That's not consistent
with the announcements made by the managing director which talks
about case by case basis, depending on country needs...Total
current liquidity available for lending is $200 billion."
Benchmark emerging equities <.MSCIEF> dropped as much as 5
percent to their lowest in nearly four years, after falling
nearly 8 percent on Wednesday.Stocks briefly trimmed losses on
the IMF rumour.
Emerging sovereign debt spreads <11EMJ> widened by 61 basis
points to 860 bps over U.S. Treasuries, levels not seen since
Nov 2002.
Sovereign debt spreads have widened by over 200 basis points
this week alone, and by more than 500 basis points since early
August, just before the outbreak of military conflict between
Russia and Georgia.
Standard & Poor's cut its outlook on Russia to negative from
stable, hours after fresh data showing the country spent another
big chunk of its reserves defending the rouble, and Fitch said
in an interview with Reuters it saw further downgrades in
emerging Europe. []
DISTRESSED RUSSIA
The cost of insuring Russia's debt against restructuring or
default rose to record highs in the five-year CDS market above
1,000 basis points, a level seen as showing the sovereign's debt
is distressed.The CDS were being quoted at 1,150-1,250 by 1330
GMT.
Merrill Lynch recommended buying Russia's CDS, with a target
at 1,500 bps.
"The medium-term outlook appears increasingly challenging,
in view of the sharp decline in oil prices that is ultimately
weighing on the external sector position," the bank said in a
client note.
Five-year CDS for other sovereigns also hit record peaks.
Ukraine's CDS were quoted at a mid-price of 2,800 basis points,
Commerzbank said.
UniCredit, in a note entitled: "sell now, ask questions
later", said Ukraine's CDS levels implied a default probability
of 80 percent.
The Ukrainian hryvnia dropped over 3 percent to a record low
of 6.0 to the dollar <UAH=>, despite four straight days of
intervention by the central bank to defend the currency.
Hungarian markets are shut for a holiday on Thursday and
Friday, after the central bank only temporarily headed off a
slide in the forint with a three-point rate hike on Wednesday,
to 11.5 percent.
In the absence of local forint trade, attention switched to
the Polish zloty, which fell to two-year lows against the euro
<EURPLN=>. The Romanian leu also dropped nearly 2 percent.
However, the rand recovered by 4 percent against the dollar
<ZAR=>, after dropping by 8.5 percent on Wednesday.
(Additional reporting by Peter Apps; Editing by Victoria Main)
