By Sebastian Tong
LONDON, April 1 (Reuters) - Emerging equities drifted a
touch higher on Tuesday on cautious optimism that the financial
sector was making headway to clean up its balance sheets, while
Turkish assets recovered from their recent sell-off.
The benchmark emerging equities index <.MSCIEF> was 0.02
percent higher at 1,104.83 at 1025 GMT, in line with higher
European markets. These were bolstered by a mixture of relief
and optimism after both UBS <UBSN.VX> and Deutsche Bank
<DBKGn.DE> unveiled additional billion-dollar writedowns from
the U.S. subprime mortgage meltdown.
Investors are hoping that the writedowns mark a turning
point in the eight-month-long liquidity crisis which will allow
the financial sector to begin its recovery.
Sovereign debt spreads <11EMJ> tightened 5 basis points to
trade 303 bps over U.S. Treasuries.
Against a relatively more benign global backdrop, Turkey's
key stocks index <> rose 1.48 percent and its lira
currency <TRY=> edged 1.15 percent higher against the U.S.
dollar.
"In the EMEA (Europe, Middle East and Africa), you are
probably best in Turkey. You are being paid quite a healthy risk
premium after a serious depreciation of the currency," said
Ralph Sueppel, head of economics and strategy at Bluecrest
Capital.
But investors are likely to stay nervous about the recent
escalation of a dispute over the role of religion in the
country's politics. On Monday, Turkey's top court agreed to hear
a case to shut down the ruling AK Party and bar the prime
minister from office.
"Extreme outcomes such as a military intervention are still
unlikely, but it is impossible to see how the process will
unfold in the coming months," said Goldman Sachs analyst Ahmet
Akarli in a research report. "Combined with pending macro risks,
political uncertainty will add to Turkey's vulnerability to
external shocks. We continue to see downside risks to asset
prices."
Official data on Monday showed that Turkey's trade deficit
-- a major component of its closely-watched current account gap
-- widened 32 percent to $4.927 billion in February.
HUNGARY'S POLITICAL WOES
A combination of growing economic and political concerns is
also expected to keep sentiment on Hungary wary. News that the
liberal Free Democrats were leaving the ruling coalition sent
Hungarian bond yields higher and the forint currency <EURHUF=>
lower.
But the forint, which has lost about 2.4 percent of its
value against the euro since the start of the year, recovered
from an early low of 261.50 to rise 0.47 percent versus Monday's
level.
"The growing political uncertainties are an unwelcome event
that will keep the forint under pressure. If the coalition
government falls apart, there is a significant risk that further
fiscal improvements will go down the drain ... with the forint
following," said RBC Dominion Securities in a research note.
Amid a mixed performance by local currencies, the Icelandic
crown <ISK=> weakened nearly 2 percent from the previous day to
77.05 against the dollar, weighed down by concerns over its
high-leveraged banking sector's exposure to the global credit
crunch.
The country's financial watchdog said late on Monday that it
had begun to investigate whether market players had deliberately
spread rumours about the alleged weakness in its banks to
manipulate the market.
(For details please double click on [])
The Slovak crown <EURSKK=> firmed 0.08 percent to 32.47
against the euro. On Monday, a government official suggested
that the currency's conversion rate for Slovakia's planned euro
zone entry next year could be around 32 crowns per euro.
The currency, up 3.45 percent against the euro so far this
year, has been rising against the common currency on market
expectations of a firmer switchover rate.
(Reporting by Sebastian Tong; editing by David Stamp)
