EMERGING MARKETS-Shares eye 3rd day of gains after 5-week dive

LONDON, June 28 Fri Jun 28, 2013 6:40am EDT

LONDON, June 28 (Reuters) - Emerging stock markets looked set to gain more than 1 percent for the third day running on Friday, helped by more lenient credit conditions in China after a sell-off on the prospect of reduced U.S. monetary stimulus.

A month ago, the MSCI emerging shares index was just about flat for the year, having recovered from a rocky start to 2013.

But the signals from the U.S. Federal Reserve that it is on course to cut back its bond-buying programme this year drove a 17 percent dive in the index from mid-May. Even with an almost 2 percent gain on Friday, it is down 13.3 percent on the year.

The relief this week has come from China's promise to take a more lenient attitude to struggling banks after authorities allowed short-term interbank rates to surge to more than 28 percent in an effort to curb high-risk lending.

That has eased concerns that China could face some form of financial crisis but leaves analysts still worried about the pace of growth.

"The real test will come when it becomes obvious to investors there are severe structural problems in China," said John-Paul Smith, head of emerging equity strategy at Deutsche Bank.

Weaker-than-expected gross domestic product data from the United States this week has also dented the argument for a swift reining in of its own programme of monetary easing.

Turkish, Russian, Indian and Chinese shares all gained more than 1.2 percent. Russia had its rating affirmed by rating agency Standard & Poor's at BBB.

The South African market was helped by Aspen Pharmacare , which unveiled the latest in a string of acquisitions on Thursday, buying medicines from U.S. firm Merck.

Emerging market sovereign 10-year spreads compared to U.S. 10-year treasury bonds have widened as much as 100 basis points in the past month, since Federal Reserve chairman Ben Bernanke signalled an exit from quantitative easing on May 22.

Spreads have narrowed more than 30 bps this week, however, edging in 3 bps on Friday to 357 bps. Emerging market fixed income funds recorded their highest weekly outflow in the week ending June 26, banks quoting EPFR said.

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