UPDATE 1-EMERGING MARKETS-Ukraine bonds firmer; emerging stocks hit 3-1/2-wk high

Mon Feb 17, 2014 6:03am EST

By Natsuko Waki
    LONDON, Feb 17 (Reuters) - Ukraine's sovereign bonds rose on
Monday after opposition protesters ended a two-month occupation
of Kiev's city hall, while emerging market stocks hit a
3-1/2-week high after upbeat Chinese lending data.
    Ukrainian opposition protesters opened a road to limited
traffic, meeting an amnesty offer aimed at easing a stand-off
over President Viktor Yanukovich's rule. The authorities
withdrew riot police from a flashpoint district of the capital.
    Ukraine's dollar bonds maturing in 2014, 2020 2023 all rose
around 1-2 points  
. But the country's hryvnia currency quickly
erased gains to stand 0.6 percent down on the day at 8.82 per
dollar in trading thinned by a market holiday in the
United States.
    The market may see renewed pressure because, from Monday,
Ukraine's importers are allowed to buy dollars again after a
six-day ban.
    "Activity is small today. Tomorrow, we are likely to see
very large activity," said a Kiev-based trader. Another trader
said: "(We) hope the central bank steps in tomorrow to prevent
the potential weakening of the hryvnia."
    The focus is on the central bank response, given that it has
spent about 8 percent of its reserves on currency intervention
in January alone, leaving them at $18 billion, an eight-year
low. 
    That is enough to cover roughly two months of imports -
raising the possibility the bank will run out of ammunition
unless it gets external support.
    "The National bank of Ukraine is running out of foreign
exchange reserves so it's inevitable for the currency to fall,"
Neil Shearing, chief emerging market economist at Capital
Economics, said.
    "The question is whether we see managed devaluation, to
about 10-11 to the dollar, or messy and disorderly adjustment.
In times of crisis, the currency tends to overshoot."
    The benchmark MSCI emerging share index rose 0.3
percent in relatively thin trading.
    Emerging market currencies were broadly steady to higher
after data showed Chinese banks made 1.32 trillion yuan ($218
billion) of new yuan loans in January, the most for four years
. 
    The data suggested the world's second-largest economy may
not be cooling as much as some fear, and helped send Shanghai
shares to a two-month high. Expectations that the U.S.
Federal Reserve would not disrupt its gradual pace of monetary
stimulus withdrawal also helped stabilise sentiment.
    "(Chinese data) was obviously strong which is good for
near-term growth. More generally, the market has taken a more
sanguine view of Fed tapering," Shearing said. "For CENTRAL EUROPE market report, see 
    For TURKISH market report, see 
    For RUSSIAN market report, see )
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