EMERGING MARKETS-Emerging stocks, rouble slip on renewed Ukraine tensions

LONDON, April 14 Mon Apr 14, 2014 5:16am EDT

LONDON, April 14 (Reuters) - Emerging stocks pulled back from last week's 4-1/2 month highs on Monday, weighed down by renewed tensions over Ukraine, with Russian equities, bonds and currency taking the biggest hit.

The Turkish lira also extended losses after a ratings outlook cut at the end of last week.

After weeks of calm, Ukraine and Russia were again the main focus of investors as fears grew of military action in eastern Ukraine, where pro-Russian separatists have been occupying state buildings.

Moscow shares fell 1-2 percent , while the rouble slumped 1 percent to 36 per dollar. Russia's sovereign dollar bond due in September 2023 fell 1.6 points to 97.125 and its share of the EMBI Global bond index widened 5 basis points over U.S. Treasuries, lagging other emerging credits.

Russia's default insurance costs hit a three-week high of 240 basis points, Markit data showed, and domestic rouble bond yields rose.

"Markets are beginning to price in war... We're seeing quite a lot of escalation in tensions," said Lars Christensen, head of emerging markets at Danske Bank.

"Until we get a clear signal from Russia that they won't be invading eastern Ukraine, we won't see a turning point for Russian and Ukrainian assets."

Ukraine's dollar bonds were also softer, with sovereign bond due in 2017 falling 2.5 cents to 93.375, a three-week low. State energy firm Naftogaz due September 2014 lost around 1.5 points.

Political concerns also pressured Turkey's lira, which fell 0.9 percent to a one-week low of 2.1327 per dollar.

Moody's cut Turkey's sovereign rating outlook to negative on Friday, citing political turbulence, external financing pressure and weaker growth prospects.

Turkey's constitutional court rolled back the government's efforts to tighten its grip on the judiciary, dealing a blow to Prime Minister Tayyip Erdogan, who is mired in a corruption scandal embroiling his inner circle.

The benchmark MSCI emerging equity index fell half a percent, after enjoying four consecutive weeks of gains.

Cheap valuations and attractive yield in emerging markets had attracted investor inflows in EM debt and equity funds of $4.7 billion in the week to April 9, according to EPFR data.

But not all investors see the recent gains as a positive development for the emerging world.

"Asset prices need to change the economic model of growth in EM if policymakers don't bring the changes," said Manoj Pradhan, head of global emerging market economics at Morgan Stanley.

"Turkey and South Africa have to go through the pain of adjustment, and China and Russia and Brazil have much more to do before they can think about a pick-up in their growth."

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 ) (Additional reporting by Sujata Rao)