EMERGING MARKETS-Shares hit 3-week lows, rand falls

* Emerging shares hit three-week lows, debt spreads narrow

* Rand drops over 1 pct to 2-wk lows on recent dlr strength

* Forint edges up ahead of rate decision

By Carolyn Cohn and Sebastian Tong

LONDON, Dec 21 (Reuters) - Emerging shares hit 3-week lows on Monday as recent dollar strength curbed investor risk appetite and drove the South African rand down, while the forint edged up ahead of an expected interest rate cut.

Analysts are looking for the Hungarian central bank to cut its key lending rate by 50 basis points to 6 percent, and investors are also focusing on a meeting of debt-laden Dubai World [DPWLD.UL] and its creditors.

The dollar held near a three-month peak against a basket of currencies set on Friday .DXY.

"There has been some underperformance of the rand, but that is still a dollar story," said Bartosz Pawlowski, emerging markets strategist at BNP Paribas.

"Analysts, including ourselves, are looking for a 50 basis point cut in Hungary but the FRA (forward rate agreement) market is only looking for a 25 bps cut. If they do cut by 50 bps, which is likely after today's horrible retail sales data, there could be some strengthening in the bond and rate markets."

The MSCI emerging equities benchmark index .MSCIEF hit three-week lows, easing 0.24 percent from the U.S. close.

But emerging sovereign debt spreads tightened by 3 bps to 302 bps over soft U.S. Treasuries 11EMJ.

The rand dropped 1.22 percent to its lowest in more than two weeks against the strong dollar ZAR=, although South African shares hit 2-1/2 week peaks .JTOPI.

The forint edged up against the euro EURHUF= ahead of the expected Hungarian rate cut, which would be the fifth successive monthly cut.

"The macro justification for cuts is clear, and...the global risk-taking environment will favour policymakers like the Hungarians, where the rate decision is a big function of market conditions rather than inflation fundamentals per se," said Barclays analysts in a client note.

Hungarian retail sales data on Monday showed an annual fall of 7.5 percent in October.

The cost of insuring Dubai's debt against default or restructuring rose by 5 bps in the five-year credit default swaps market to 451.9 bps, according to CDS monitor CMA DataVision, ahead of Dubai World's creditor meeting.

Dubai World will not make any specific proposals on a debt standstill at the meeting, a source close to Dubai World told Reuters. [ID:nLDE5BK0CZ]

Dubai World is looking to restructure $22 billion in debt, a debt mountain reduced after Dubai gained a $10 billion lifeline last week from fellow United Arab Emirates member Abu Dhabi, enabling Dubai World subsidiary Nakheel to repay $4.1 billion on an Islamic bond. [ID:nLDE5BJ01R]

"Investors are now a bit more confident after what happened to Nakheel," said Pawlowski.

Dubai is expected to seek more aid from within the UAE to help with its maturing debt next year, the UAE economy minister said on Monday. [ID:nLDE5BK05X].

Boosted by firmer oil prices, the rouble snapped a three day losing streak, rising slightly against its euro-dollar basket RUS=MCX.

The Romanian leu EURRON= was steady against the euro as political uncertainty eased. Markets are eyeing a confidence vote this week on a centrist cabinet unveiled by Prime Minister designate Emil Boc on Sunday [ID:nLDE5BJOBX].

The Serbian dinar EURRSD= was also steady ahead of Serbian President Boris Tadic's visit to Stockholm on Tuesday to submit a formal application for European Union membership. [ID:nLDE5BJ001] (Editing by Andy Bruce)