* Stocks bounce 0.5 percent on German, euro zone GDP
* C.Europe GDP gains seen fragile; zloty up on rate talk
* Yield hunt to continue driving local bond yields
By Sujata Rao
LONDON, Aug 13 (Reuters) - Emerging stocks bounced half a
percent on Friday after three lossmaking sessions and central
European currencies rose, cheered by news Germany had posted the
strongest economic growth since its reunification.
Year-on-year growth in the Czech Republic and Hungary also
accelerated and there are hopes for upward revisions given the
strength in Germany which is a major recipient of central
European exports.
World financial markets have seesawed in negative territory
in recent sessions, spooked by a pessimistic message from the
U.S. Federal Reserve, data showing slower economic growth in
China and fresh worries about euro zone member Ireland.
That is despite the Fed's decision to continue buying
Treasury bonds, a move that will help maintain financial market
liquidity at current high levels.
But investors greeted news that German gross domestic
product (GDP) growth in the second 2010 quarter had been a
forecast-beating 2.2 percent while the Austrian and French
economies also grew more than expected.
With European stocks up and U.S. stock futures also showing
a stronger Wall Street rise, MSCI emerging stocks gained 0.5
percent <.MSCIEF>. Bourses in emerging Europe rose by 0.3-0.6
percent, trimming early gains while the Thomson Reuters emerging
European stock index <.TRXFLDEEPU> was also off early highs to
trade 0.10 percent up by 1000 GMT.
The emerging markets benchmark index is however down almost
3 percent this week and looks set to end the week with the
biggest loss since early July.
"This morning, on the data front we've had very good news in
the shape of German GDP. That's encouraging from the point of
view of the big risk, i.e. double dip recession," said Phil
Poole, head of global and macro strategy at HSBC Asset
Management.
"While peripheral Europe has become more of a concern,
markets are putting risk back on and volatility is coming down
again on the FX market," Poole said, but he added: "This is
classic summer trading, with substantial moves on low volumes."
Emerging bonds continued to hold gains, with the EMBI Plus
and EMBI Global indices of sovereign government debt showing
spreads one basis point tighter to U.S. Treasuries <11EMJ>
<11EML>. Returns on the indices are around 12 percent this year.
CENTRAL EUROPE
In emerging Europe, sentiment has improved in recent days --
Hungary on Thursday placed more debt than planned in an auction
at yields 5-10 bps below market rates.
But economies remain fragile and analysts said any signs of
strength reflect base effects and export growth rather any
improvement in domestic demand.
Despite an annual 1 percent rise, Hungarian quarterly growth
stalled []. Romania returned to quarter-on-quarter
growth and shrank less than expected on an annual basis,
although analysts are sceptical this will last.
But Czech growth was a strong 2.2 percent year-on-year and
above forecasts in the second quarter lID:nLDE67C08T].
Currencies were flat to marginally firmer, with the forint
up 0.17 percent to the euro <EURHUF=> and the Polish zloty
trading below 4 to the euro <EURPLN=> after the central bank
governor said an interest rate hike was still likely this year.
July inflation data due after 1200 GMT could determine
whether the zloty manages a break below a strong technical
barrier at 3.98 which would enable it to head for 3.94 per euro.
Many analysts say however a decrease is likely in July
followed by an inflation surge in August and coming months.
"The growing evidence monetary policy will turn more hawkish
sooner rather than later ... is supportive for the zloty,"
Societe Generale analysts said in a note. "Poland stands out in
the region and it will lead the monetary tightening cycle, so we
expect the currency to outperform its peers."
On local bonds, South Africa's benchmark yield <ZAR157=>
fell to fresh 19-1/2-month lows, despite recent signs of
strength in manufacturing that have reduced the case for an
interest rate cut.
The Czech benchmark yield <CZ1002471=> steadied just off
lifetime lows touched earlier this week.
"With G3 short end rates hitting new lows we believe this
environment could still push EEMEA rates lower during the coming
months," Unicredit analysts predicted in a note.
Turkish 2-year yields likewise eased 13 bps to 8.27 percent,
after spiking earlier this week on talk of delay to key fiscal
reforms.
The lira rose half a percent <TRY=> against the dollar while
the other big dollar cross, South Africa's rand, rallied more
than one percent. But it stayed off recent two-year highs.
(Editing by Ruth Pitchford)
