* Emerging stocks at 20-mth highs on recovery optimism
* EMBI Plus spread just off lowest since Nov 2007
* Turkey yields up; c.bank signals exit
By Sujata Rao
LONDON, April 6 (Reuters) - Global investors looked past a
rise in U.S. Treasury yields to focus on signs of economic
recovery on Tuesday, pushing emerging stocks to fresh 20-month
peaks, with some equity markets hovering near record highs.
Sovereign emerging dollar bonds saw spreads over Treasuries
rise 3 basis points to 236 bps on the EMBI Plus index <11EMJ>
though this is just off November 2007 lows hit on Monday when
the index outperformed Treasuries to contract 18 bps.
U.S. 10-year Treasury yields rose past 4 percent for the
first time in 10 months but this was after encouraging data on
jobs, home sales and the services sector helped convince
investors about the sustainability of U.S. economic recovery.
The optimism spilled into emerging markets, where benchmark
MSCI emerging stocks gained 0.2 percent <11EMJ> -- rising for an
eighth day. Russian, Polish, South African and Hungarian
equities <> <> <.JTOPI> were at their highest levels
since mid-2008. Turkish stocks <> eased off record highs
hit on Monday.
On Monday Mexican stocks hit record highs while Brazil's
main index rallied to 22-month peaks.
"There is an underlying element of risk appetite. There was
relief on Friday when the (U.S.) unemployment numbers came in as
expected," said Nigel Rendell, emerging markets strategist at
RBC Capital Markets.
While there are worries about Greece, which is seeking to
raise debt in U.S. markets to cover May borrowing needs, Rendell
said: "Greece does not seem to be troubling emerging markets,
people realise that if worst comes to worst, the European Union
will bail them out."
Overall news flows from emerging markets too have been
broadly supportive of currency and stock markets.
In Turkey, bond yields have surged as inflation has
surprised on the upside for four months in a row, but growth
data has boosted stocks <> and rate hike prospects have
pushed the lira to six-week highs versus the dollar <TRY=>.
The yield on the benchmark 2011 bond rose to 9.18 percent
from 8.94 percent on Monday.
"Upside inflation outcomes for the past four months have
created a significant credibility challenge for the (Turkish
central bank), especially since (it) is lending money at levels
well below headline inflation," JP Morgan said, noting inflation
around 10 percent versus one-week lending rates of 6.8 percent.
It forecasts Turkey's central bank will raise overnight
borrowing rates by 100 basis points at an April 13 policy
meeting and added: "We believe that such a sharp and unexpected
hike will help in restoring the (central bank's) credibility."
RUSSIA, POLAND
Russian markets also rallied with the rouble hitting fresh
15-month highs as oil prices neared 18-month highs, prompting
the central bank to move its floating trading band to
33.70-36.70 versus the euro-dollar basket.
The rouble could also get support from comments by Finance
Minister Alexei Kudrin who said the risk of inflation means
there may be less room for rate cuts now. The central bank has
cut rates 12 times since last April but rates remain relatively
high at 8.25 percent. []
The Polish zloty traded near 16-month highs <EURPLN=> and is
central Europe's best performing currency this year, gaining 7
percent against the euro.
Polish five-year yields fell to their lowest level in over a
year as inflation has remained benign and the central bank last
week cooled rate hike expectations by signalling its concerns
over the strength of economic recovery.
One currency trader forecast the zloty would outperform for
now but cautioned: "It's a crowded trade so it may be a bit
risky to add positions."
"The momentum is there for eastern Europe, everyone wants to
keep risk there due to lack of better (outlets) in the rest of
Europe but the Greek story is still around so that's a concern,"
the trader added.
Yields in neighbouring Hungary and Romania have been near
record lows following rate cuts and signals of more to come.
Elsewhere, Dubai's state-run utility DEWA started a roadshow
for a bond expected at $1-$1.5 billion. This will be the
emirate's first issue since it shocked world markets in November
with a standstill on $26 billion in debt owed by
state-controlled Dubai World conglomerate.
(Editing by Susan Fenton)
