LONDON, March 21 Russian stocks dropped 3 percent on Friday as concerns grew over the impact of possible U.S. sanctions on Russia's economy, but Chinese stocks rose sharply on news of looser finance restrictions for property developers.
U.S. President Barack Obama said on Thursday Washington was considering sanctions against key economic sectors in Russia, including financial services, oil and gas, metals and mining and the defence industry, if the country made military moves into eastern and southern Ukraine.
Fitch and Standard & Poor's put Russia's sovereign rating on negative outlook, citing the potential negative impact from sanctions.
The rouble fell half a percent and Russia's debt insurance costs rose slightly to 265 basis points in the five-year credit default swap market, according to Markit, but remain below recent highs.
"The rouble has weakened again on expectations of additional sanctions and more capital flight," said Manik Narain, emerging markets strategist at UBS.
"The CDS ... are priced for at least one if not two ratings downgrades."
Shanghai shares had their best day in four months, rising 2.7 percent after reports regulators are reviewing financing applications from listed developers, which analysts said may help reduce default risk for both banks and developers.
The yuan hit its lowest since Feb 2013 before closing firmer, posting its biggest weekly loss since 1992. The yuan has been falling sharply since the central bank widened its trading band last weekend.
The MSCI emerging equities index gained a modest 0.3 percent, with the Chinese rally outweighing losses in Russia.
Turkish stocks fell nearly 1 percent after Turkey's courts blocked access to Twitter.
Central European stocks and currencies were generally steady, though the Ukrainian hryvnia fell sharply. Emerging sovereign debt spreads inched out by 1 basis point to 345 bps over U.S. Treasuries.
Russian stocks fell as much as 3 percent before trimming some losses, yet remained on course for a rise of nearly 5 percent this week, after losing more than 8 percent in the previous week.
Investors cheered President Vladimir Putin's address to parliament earlier in the week, as he said Russia did not need further division of Ukraine after Crimea. But the mood has soured on the threat of deeper sanctions.
Russian stocks traded offshore through global (GDR) and American depositary receipts (ADR) and settled in dollars have been trading at a premium in recent days, traders say, because of concerns about access to the rouble currency.
The MSCI index of Russia ADRs/GDRs has fallen 8.5 percent in the past month, but Russian onshore stocks have fallen 10.5 percent.
For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Reporting by Carolyn Cohn; Editing by Toby Chopra)