* Latvian lat sees biggest 1-day rise in five years
* Emerging Europe FX up on Latvia hopes; forint leads
* Lack of fresh data caps emerging equity gains
By Sebastian Tong
LONDON, June 9 (Reuters) - A sharp recovery in the Latvian
lat on Tuesday eased devaluation fears in the Baltics and nudged
Eastern European currencies higher while rising commodity prices
helped most emerging equity markets find a firmer footing after
a weak Asian session.
The lat <EURLVL=> chalked up its biggest one-day rise in
nearly five years as the government moved closer to implementing
budget cuts required for the resumption of aid from the
International Monetary Fund (IMF).
A lack of fresh impetus capped emerging equity gains as
investors continued to seek new data to affirm hopes that the
global economy had bottomed out.
News that China had eased rules to encourage outward
investment by its companies failed to rouse investors, who are
pausing after a three-month rally that has driven emerging
equities up by some 35 percent.
Eastern European economies slid into recession in the first
quarter, data from Romania, Hungary and the Czech Republic
showed on Tuesday. []
By 1030 GMT, the key emerging share index <.MSCIEF> sagged
0.49 percent while emerging European shares <.MIEE00000PUS> were
flat despite slight gains on Czech <> and Polish <>
bourses.
"There's a high degree of uncertainty at this point about
the shape of the economic recovery so most people are sticking
to small positions and trading within ranges," said Nigel
Rendell, emerging markets strategist at Royal Bank of Canada.
"Markets will stay directionless until we get more data."
More subdued sentiment also resulted in more modest gains
for Russian shares <> despite firmer oil <CLc1> prices.
Oil ended two days of falls ahead of weekly stocks data
expected to show a drop in U.S. crude inventories.
LATVIA IN FOCUS
Hungary's forint <EURHUF=>, which has been under pressure in
recent days on fears of contagion from a possible collapse of
Latvia's currency peg, led emerging European currencies gains to
rise over 1 percent percent against the euro.
The Polish zloty, down 8 percent since the start of the
year, was 0.6 percent higher against the euro <EURPLN=> while
the Romanian leu <EURRON=>, also rattled in recent days by
currency fears over Latvia, firmed.
Latvia's lat rose 0.7 percent -- its biggest one-day gain
since August 2004 -- to its highest level against the euro
<EURLVL=> since early February as hopes rose that its government
can push through more than $900 million in budget cuts to pave
the way for the IMF to resume a 7.5 billion-euro aid package.
[]
"If everything goes as expected the new (budget) package
will be passed in parliament on Friday. As a conclusion the risk
of devaluation has decreased substantially," SEB said in a
research note.
The cost of insuring Latvian sovereign debt for five years
eased to 719 basis points from 744 bps, according to CMA
DataVision.
Latvian interbank overnight rates <RIGIBOR=> remained
unchanged at record highs and are expected to keep demand for
the lat strong in the spot market.
Neighbouring Lithuania is expected to launch a global bond
this week aimed at raising 500-600 million euros.
Emerging sovereign debt spreads <11EMJ> are 6 bps wider to
trade at 422 bps above U.S. Treasuries -- their closest levels
since late September.
(Reporting by Sebastian Tong; editing by Stephen Nisbet)
