EMERGING MARKETS-Shares recover, lira gains after intervention

LONDON, July 9 Tue Jul 9, 2013 5:39am EDT

LONDON, July 9 (Reuters) - Emerging stocks rebounded on Tuesday, tracking U.S. shares higher, and most currencies also recovered some ground, with many, such as the Turkish lira, lifted by central bank buying.

Broad support came from a good start to the U.S. earnings season following last week's strong jobs data.

Investors have been drawn away from higher-yielding risky assets for weeks because signs of recovery in the United States have raised expectations that the Federal Reserve will ease off on its bond-buying programme, lifting Treasury yields.

However, on Tuesday, investors squared positions before Wednesday's release of minutes from the latest Fed meeting - expected to provide more clues on the bank's tapering plans.

"Uniformity continues to rise, showing that there is no story but the dollar move across emerging market currencies," Deutsche Bank analysts said in a note.

The MSCI emerging stocks index rose nearly one percent, after hitting 11-day lows in the previous session, with Russian shares rallying amid steady oil prices. Chinese shares were flat to slightly higher.

China's annual consumer inflation accelerated more than expected in June but factory-gate deflation persisted for a 16th month, data on Tuesday showed.

The Egyptian pound held steady above recent record lows after Egypt's interim head of state set a speedy timetable for elections following the army ousting of President Mohamed Mursi last week.

Egyptian stocks rose more than 2 percent after dropping 3.5 percent on Monday.

Emerging sovereign debt spreads tightened 1 basis point to 340 bps over U.S. Treasuries, and have narrowed about 50 bps in the past two weeks.

Most emerging European currencies were slightly stronger, with the Czech crown rising after above-expected June inflation reduced expectations that the central bank might intervene to weaken the currency.

The Indian rupee rallied from Monday's record low after regulators restricted speculative trading in currency derivatives, while the Turkish lira hit six-day highs, also up from Monday's record lows after the central bank sold over $2 billion.

Many emerging markets have moved into tightening mode to prevent investor flight to the attractions of the rising dollar and U.S. Treasury yields.

"The premium that the market is going to put on emerging markets of strong versus weak external finances is going to rise," said Brian Coulton, emerging markets strategist at Legal & General.

"Turkey, South Africa and to some extent Indonesia look exposed."

Brazil and Indonesia are expected to raise rates this week.