* Emerging equities hit 4-year low, debt spreads widen
* Emerging Europe seen particularly vulnerable
* Investors looking to IMF, ECB help for emerging economies
By Carolyn Cohn
LONDON, Oct 24 (Reuters) - Emerging equities crashed to
four-year lows on Friday, bringing losses for the week to 15
percent, as investors unwound positions in risky assets in the
latest leg in the global financial crisis.
Benchmark emerging stocks have lost 60 percent this year and
are down 38 percent this month, underperforming the
all-countries stock index which has lost 46 percent in 2008.
Until October, emerging markets had not suffered
disproportionately in the global credit crisis, but analysts say
hedge funds have now been forced to unwind highly-leveraged
positions in emerging markets to obtain cash.
Sell-offs have been sharp in European trade, as analysts see
emerging Europe as among the riskiest plays in emerging markets.
"Equities are still selling off across the board," said Lars
Christensen, head of emerging markets research at Danske in
Copenhagen.
"We are less worried about Latin America and Asia in the
long run. The big problem is central and eastern Europe."
Benchmark emerging equities dropped 6.4 percent to 481.40
<.MSCIEF>, the index's lowest since November 2004.
Russia's most liquid stock exchange Micex <> suspended
trade after the index fell 7.48 percent and the
dollar-denominated RTS <> was also suspended after a 7.3
percent fall.
The low-yielding yen soared more than 6 percent to 13-year
highs against the dollar <JPY=>, a sign of the stampede away
from riskier assets.
Emerging sovereign debt spreads <11EMJ> widened by 11 basis
points to 866 basis points over U.S. Treasuries, close to their
widest in six years.
Emerging market currencies dropped at speeds regarded as
alarming in more stable markets.
The Romanian leu fell 3 percent against the euro <EURRON=>
from the U.S. close and the rand <ZAR=> fell 3.5 percent,
although it held off recent six-year lows.
The leu has found some support relative to other eastern
European currencies from high money market rates, which analysts
say have been engineered by the central bank.
The Ukrainian central bank intervened for a fifth straight
day to prop up the currency as the hryvnia traded close to a new
record low against the dollar <UAH=>.
IMF RESCUE?
Emerging markets had found some support in the previous
session from rumours of an IMF $1 trillion bail-out package.
The IMF said late on Thursday it was hurrying to approve a
package by early November that would allow certain emerging
market economies to exchange local currencies for U.S. dollars
-- a liquidity swap facility [].
The IMF also said it was discussing possible loan packages
for a number of countries, but said there had been no discussion
of a $1 trillion package.
Investors are looking to possible IMF packages for Iceland,
Hungary, Ukraine, Turkey, Serbia, Pakistan and Belarus.
"The IMF is really reinventing itself as the lender of last
resort," said Christensen.
"Things cannot be allowed to go on the way they are, so
there is obviously a need for action. In terms of central and
eastern Europe, however, I think what we will see is the
European Central Bank taking the lead, rather than the IMF."
Meanwhile, the cost of insuring the debt of Latvia, which
analysts say is another potential candidate for IMF help, hit
the key 1,000 bps level late on Thursday.
This means it costs $1 million a year for five years to
insure $10 million of Latvian debt against restructuring or
default, a level analysts regard as distressed. Traders said no
prices were available in Latvia's CDS on Friday.
Russia's CDS passed the 1,000 bps mark this week, and Turkey
was quoted at 820-860 bps on Friday, around 45 bp wider from
Thursday's close, one broker said.
European bank stocks hit an 11-year low as HSBC <HSBA.L> and
Santander <SAN.MC> were hit by growing fears of a slowdown in
emerging markets.
"Too many countries are still running wide current account
deficits, and arguably need FX corrections to rebalance wide
external financing imbalances in an environment where export
demand for commodities/manufactures from emerging markets is
only set to recede," said analysts at RBS in a client note.
(Additional reporting by Peter Apps, editing by Swaha
Pattanaik)
