* Emerging market rout shows risks to safe-haven Swiss franc
* SNB capped franc at 1.20 per euro at height of debt crisis
* More stable euro zone, Swiss economy stirs debate over cap
* SNB will maintain cap for as long as necessary - Chairman
By Alice Baghdjian
ZURICH, Feb 6 (Reuters) - The rout in emerging markets is threatening to drive up the Swiss franc, making a case for the Swiss National Bank to keep its currency cap in place for some time despite some claims it is becoming less necessary.
Investors have been speculating about how long the central bank will keep its 1.20 francs per euro cap, introduced in 2011 to protect the Swiss economy from deflation and a recession. That was when investors were fleeing the euro zone crisis and bidding up the franc to record levels.
Early signs of stabilisation in the euro zone, and a recovery in Switzerland, where consumer prices are inching into positive territory and the economy is strengthening, has made the cap less pertinent.
But there is another driver now. Turbulence across emerging markets has increased appetite for safe-haven currencies like the franc and prompted policymakers to sound warnings over the continued fragility of the global economic recovery, among them the ultra-cautious SNB.
Having touched a four-month low of 1.2394 against the euro in the first half of January, the franc has since appreciated to trade at 1.2221 francs per euro on Thursday as investors bowed out of emerging markets and sought a safe place for their money.
"This highlights what the SNB has been saying all along, that the risks are still very prominent globally," said Reto Huenerwadel, economist at UBS, who forecasts an exchange rate of 1.26 for the end of 2014 and through 2015.
"It makes the tool of the minimum exchange rate (the cap) vital," he said.
SNB Chairman Thomas Jordan identified financial market volatility as a key risk this year and said any sudden loss of confidence could put Switzerland in a "difficult position".
On Wednesday, he said the cap would remain in place as long as necessary to ensure adequate monetary conditions in Switzerland.
Policymakers elsewhere have also tried to temper any premature optimism over the global economy.
European Central Bank President Mario Draghi has stressed that though there are encouraging signals of an economic recovery in the euro zone, it is still "weak and uneven".
In neighbouring Switzerland, recent data has shown an economic recovery is underway. The government raised its 2013 growth forecast slightly in December to 1.9 percent, expecting a further acceleration in the next two years, to 2.7 percent in 2015.
Prices rose 0.1 percent year-on-year in November, their first rise in two years. The tentative rise was maintained in December.
Though the signs are encouraging, the SNB's vice-chairman has said the central bank would only scrap the cap if prices were much firmer. The SNB is not expected to diverge from its minimum-exchange rate policy in the foreseeable future, and maintains the franc is still highly valued.
Nevertheless, cautious optimism over the health of the euro zone and global economy earlier this year has encouraged some forecasts for a steady or weaker franc in 2014.
"Improvements in euro zone stability have reduced the requirement of the Swiss franc as a safe-haven - further haven unwinds should continue this year. We target 1.33, which is close to fair value for EUR/CHF," economists at Bank of America Merrill Lynch said in a note at the start of the year.
The SNB has not intervened in the forex markets for more than a year to defend the exchange rate by buying up euros and selling francs, a strategy that cost it billions in 2012 and swelled its foreign currency reserves, which stood at 435.190 billion Swiss francs ($480.53 billion) by the end of 2013.
While support for the cap generally remains strong within Switzerland's export-oriented economy, some say if current conditions persist, it could pave the way for a cap exit.
"The extraordinary measures introduced in 2011 have to be taken away when the situation eases," said Raiffeisen economist Roland Klaeger, who expects the SNB to scrap the cap in the fourth quarter of 2014.
The improving economy, rising asset prices and flourishing real estate market in Switzerland would, in the past, have prompted discussion of interest rate increases, Klaeger said.
The SNB's efforts to cap the franc would clash with a hike in rates, and consequently, the central bank has turned to macroprudential measures to try to rein in the overheating Swiss property market.
"The situation in the euro zone has fortunately eased significantly and if it remains stable during the next quarters there is no longer a justification for capping the franc at 1.20 per euro," Klaeger said. ($1 = 0.9057 Swiss francs) (Additional reporting by Albert Schmieder Editing by Jeremy GauntAliced)