EMERGING MARKETS-Stocks rally further after grim month

* Stocks rise 1 pct as Fed stimulus hopes grow

* MSCI emerging equities down 10 pct in August

* Bond yield spreads vs Treasuries widen 50 bps on month

By Sujata Rao

LONDON, Aug 31 (Reuters) - Emerging equities extended gains on Wednesday, rising one percent on renewed hopes of Fed action to shore up the flagging U.S. economy at the end of its worst month since the 2008 financial crisis.

MSCI's emerging equity index has recovered almost 6 percent from lows hit on August 9 but is still down around 10 percent this month, the worst monthly loss since October 2008, reflecting worries over global growth and European and U.S. problems with debt.

While emerging bonds have fared better, spreads over U.S. Treasuries have widened over 50 basis points on JPMorgan's debt indexes .

But sentiment is now being supported by expectations that the U.S. Federal Reserve will resort to some form of stimulus, with minutes from the last meeting showing that policymakers discussed a range of tools to shore up recovery.

"Throughout August emerging equities took their cue from developed markets as the U.S. growth ceiling concerns and moderating growth momentum took a toll. Now markets are pausing to take stock after the violent moves," said Manik Narain, emerging markets strategist at UBS.

"The FOMC minutes last night were dovish and markets are hoping September will bring more easing or dovish posturing from the Fed which will support risk sentiment," Narain said, though he noted that recent gains have come amid thin liquidity.

Asian stocks mainly closed higher while in emerging Europe, Russia gained 1 percent helped by oil prices as well as forecast-beating corporate results, the latest of which was oil firm LUKOIL's 64 percent rise in second quarter profits.

Gazprom and Sberbank were the other companies to post solid results this week.

Shares in Rosneft were just off three-week highs hit on Tuesday when the company announced a tie-up with U.S. Exxon Mobil to extract oil and gas from the Russian Arctic . Shares rose 1.4 percent on Tuesday.

Russian bank Uralsib recommended buying Rosneft shares.

"We see medium-term value in the potential transfer of ExxonMobil technology to develop Rosneft's tight oil in Russia...The terms of Rosneft's entry into Exxon's US projects could also be favorable, at a historical cost value," it said.

CURRENCY FIRMS

On currency markets, the Turkish lira firmed to the highest level since early August against the dollar, albeit in thin offshore trade as local markets are closed all week for a holiday .

The South African rand likewise touched a three-week high , buoyed by benchmark four year bond yields hitting a record low of 6.45 percent .

While South African yields have fallen 50-70 basis points in August -- pushing prices higher -- the currency has lagged due to market expectations of cuts in official interest rates. The bets intensified following the release of weak second quarter growth data on Tuesday.

Tradition Analytics said 12 billion rand had poured into local bond markets in the past month.

"Without these inflows we would have seen a far weaker rand in August," the bank said.

In central Europe, stock markets rose by around 1 percent across the board with Warsaw up 1.2 percent .

Currencies were a touch firmer, with the forint rising 0.3 percent against the euro .

The best performer was the Serb dinar , which touched a six-week high to euro after news the International Monetary Fund had agreed to a new one billion standby loan for Serbia.

Elsewhere, the Brazilian real was trading at a one-week high to the dollar ahead of a central bank meeting that is expected to call a halt to a long run of policy tightening.

Forward market rates price in some chance of a quarter-point rate cut but most analysts say that with annual inflation running well above target, Brazil, like most other emerging central banks, will be reluctant to start cutting just yet.

Investors are also now waiting for U.S. jobs data due later on Thursday and on Friday as well as Friday's release of August purchasing managers' surveys from a range of countries.

"The PMI data will be the most up-to-date data point on state of global economy in August so far most indicators have been survey-based," said Narain of UBS. "That should show if there is indeed a very sharp (growth) moderation and that's something central banks will pay attention to." (Reporting by Sujata Rao)