EMERGING MARKETS-Eastern Europe bonds, stocks advance on Ukraine deal; Brazil's real gains

Fri Feb 21, 2014 1:12pm EST

By Asher Levine and Sujata Rao

SAO PAULO/LONDON Feb 21 (Reuters) - Eastern and Central European bonds and stocks gained on news of a deal on Friday to end a violent standoff in Ukraine, while Brazil's real currency extended gains as market analysts gave a cautious thumbs up to a new fiscal savings plan.

In the Ukrainian capital Kiev, opposition leaders signed an EU-mediated accord with President Viktor Yanukovich, aiming to resolve a political crisis and opening the way for an early presidential election this year.

Hopes for a possible end to the crisis and street violence that has killed at least 77 people this week also supported assets in nearby emerging markets, including Turkey and Central and Eastern Europe.

Ukraine's dollar-denominated bond maturing in June 2014 rose 1.417 point to bid 96.667, according to Tradeweb. Ukraine's 2017 dollar bond rose 3.045 points to bid 87.154, off recent record lows of 83, according to Reuters data.

Debt insurance costs on Ukraine, which had hit their highest since 2009, also fell by more than 3 percent, according to Markit's five-year credit default swap quotes.

Returns on Russian, Hungarian and Croatian bonds rose modestly, and Turkish bond returns strengthened by 0.51 percent, according to J.P. Morgan's Emerging Markets Bond Plus index .

Stock markets also rallied in Russia, Poland and Romania and edged higher in Hungary.

Shares in Polish bank PKO rose 1.2 percent and Hungarian bank OTP gained 2 percent. Both banks have Ukraine operations.

RBS analyst Tatyana Orlova noted that Ukraine is still in dire financial straits, given the fresh delay to the second tranche of a Russian loan that stands between Kiev and a debt default.

A Russian envoy sent to Kiev by President Vladimir Putin said Moscow still had questions about the EU-brokered peace deal, Interfax reported on Friday.

"This is not the end of the story. What I am reading is there is a deal but the devil is in the details... The urgent need is for a technocratic cabinet that could take steps to avert default," Orlova said.

"The key thing to watch is the Eurobond maturing in June, if things are not clarified by then, we could see a default."

The Russian rouble gained 0.6 percent on expectations of a Ukraine deal and end-month tax payments.

In Latin America, Brazil's real extended Thursday's gains against the dollar as investors continued to view the government's new primary budget surplus target with cautious optimism. The target of 1.9 percent of gross domestic product, target, albeit lower than in previous years, could help build credibility in the nation's economic policies.

Brazil in 2012 and 2013 fell short of its goal for the primary budget surplus, a key gauge of debt-servicing capacity since it represents the excess of public sector revenues over expenditures but excludes interest payments.

"Yesterday's budget announcement was better than expected: specifically, it showed more realistic macroeconomic assumptions and could please market participants and rating agencies," wrote JP Morgan Securities analyst Fabio Akira Hashizume. "However, we still see some inconsistencies in the policy, and execution risks remain high."

Mexico on Friday reported slower than expected fourth quarter economic growth due to a drop in manufacturing and a slowdown in services. But the peso still strengthened slightly, as investors maintained expectations for an interest rate hike by the end of the year.

Other Latin American currencies remained little-changed, while the region's stocks advanced slightly following stronger earnings from some Brazilian and Mexican companies, such as retailer Lojas Renner SA and broadcaster Grupo Televisa.

MSCI's broader emerging market equities index rose 0.9 percent off one-week lows, putting it on track for its third straight weekly gain. Still, emerging equity funds saw their 17th straight week of outflows.

However Chinese mainland stocks erased a week of gains on back of the yuan's biggest weekly drop since 2012 which has sparked debate on whether the currency's trading band will be widened.

The offshore yuan slid past 6.10 per dollar, for its biggest one-day loss since October 2011 as traders unwound what has been one of the most popular carry trades this year following a weaker yuan in the mainland market.

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

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