EMERGING MARKETS-Stocks at 2-week lows, yield spreads wider

* Emerging market stocks fall to 2 week lows

* Chilean peso reaches 8-1/2 high on $4 bln repatriation

By Daniel Bases

NEW YORK, June 16 (Reuters) - Emerging markets suffered another day of selling as investors pulled back on the riskier asset class, taking a cue from the drop in developed market stocks.

"I think there was a bit of a pullback in risk appetite globally... On the whole there is a bit of a technical pullback after two months of very strong performance. I think at least Latam has performed relatively well," said Rafael de la Fuente, emerging markets analyst at BNP Paribas in New York.

MSCI's emerging markets stock index fell 0.88 percent .MSCIEF, to a two week low of 769.94, while MSCI's Latin American stock index dropped 1.98 percent to 2,038.46 .MILA00000PUS, also a two week low.

Rising U.S. bond prices pushed yield spreads wider against weaker emerging market sovereign issues. The benchmark JP Morgan Emerging Markets Bond Index Plus 11EMJ.JPMEMBIPLUS widened by 13 basis points to 437 basis points over U.S. Treasuries.

Most Latin American currencies were weaker against the U.S. dollar, even though the greenback itself fell against the euro and yen after Russia suggested a need for an alternative global reserve currency and U.S. data showed a rebound in U.S. housing starts.

Colombia's peso tumbled 1.33 percent COP=RR to 2,040 against the U.S. dollar, giving up earlier gains.

The finance ministry said it expects 2.5 percent gross domestic product growth next year but also said it will increase debt auctions to finance deficits deepened by slow growth and low revenue.

The Chilean peso bucked the trend in currencies on the back of the government's announcement that it would repatriate $4 billion in windfall copper savings to counter its ballooning fiscal deficit.

The peso rose 1.87 percent at 554.80/555.30 per U.S. dollar, an 8-1/2 month high that pushed the currency up 15.54 percent year-to-date CLP=CL against the greenback.

Copper prices are up 59 percent from their recent lows in late February.

Traders in Chile however said the move in the peso was overdone.

"What we expect, after this overreaction, is for the dollar to rise gradually against the peso in search of exchange rate equilibrium," said one foreign exchange dealer.

Separately, Brazil's government said it may sell more global bonds in 2009. [ID:nSPG002378]

CENTRAL BANK MOVES

Chile's central bank is widely expected to cut its target overnight lending rate 50 basis points to a record low of 0.75 percent later on Tuesday.

Earlier, Turkey's central bank continued its rate cutting program, slashing its two benchmark interest rates in an effort to offer needed stimulus to its hobbled economy.

The interest rates were cut by a larger-than-expected 50 basis points each with a bias toward more cutting in the future, the bank said. The borrowing rate stands at 8.25 percent while the lending rate is now 11.25 percent.

Finansbank chief economist Inan Demir wrote clients on Tuesday it thought the central bank was nearing the end of its easing cycle given some strength in economic indicators and the recent rise in commodity prices that is bringing along some "sticky medium-term inflation expectations and lack of a credible fiscal framework.

"Indeed, today's statement does not rule out this possibility. However, it also refrains from sending out a clear signal regarding the end of rate cuts, which keeps another 25 to 50 basis point cut on the table in next month's meeting," Demir wrote.

"In any case, even if this is not the trough in policy rate, we believe we are very close to the trough and the Committee is aiming to prepare the market for the end of easing cycle," he wrote.