Roubini: Dollar may feed emerging market inflation

* Bank measures may fan price rises in emerging markets

* Capital controls could be answer to currency gains

By Luis A. Henao

BUENOS AIRES, Nov 24 (Reuters) - U.S. dollar weakness may lead to inflation and asset bubbles in emerging markets as central banks step up foreign-exchange intervention to prevent rapid gains in their currencies, economist Nouriel Roubini said on Tuesday.

Central banks in Latin America and Asia, where currencies have jumped this year as the dollar declined, are now rapidly accumulating reserves, which in turn increases the money base in local markets and may stoke inflation, according to Roubini, chairman and co-founder of the RGE Monitor newsletter.

As central banks buy reserves, they "create base money and this discretional base money feeds inflation and feeds an asset bubble in these economies," he said via teleconference at an event in Buenos Aires.

Capital control measures like those adopted by Brazil last month could become an alternative solution, he added.

"Emerging markets are beginning to think about capital controls on inflows, not on outflows," said Roubini, one of the few economists who accurately predicted the magnitude of the global financial crisis.

In October, Brazil said it would start to charge a 2 percent financial transactions tax on foreign investment flows to the country's stock market and fixed-income securities.

The Brazilian real has rallied more than 30 percent against the U.S. dollar this year and other currencies in the region, including the Argentine peso, are also appreciating.

Prospects for economic recovery in Latin America and other emerging markets are better than in the United States and Europe, and the region may grow 3 percent in 2010, Roubini said.

He said Argentina's economy will lag other countries in the region, expanding between 2 percent and 2.5 percent next year.

Roubini said Latin America's No. 3 economy still faces challenges as it weathers the global crisis eight years after its sharp 2001/02 economic meltdown, saying it should work to normalize its relations with creditors such as the Paris Club.

Argentina should also "resolve its confrontation with the International Monetary Fund and accept an economic review by the Fund," he added.

Argentina is working to reach a deal with investors who rejected a 2005 restructuring of defaulted debt to clear the way to issue new bonds. (Writing by Vivianne Rodrigues; Editing by Jan Paschal) ((vivianne.rodrigues@reuters.com ; +5411 4318-0663; Reuters Messaging: vivianne.rodrigues.reuters.com@reuters.net))