EMERGING MARKETS-Russia's debt insurance costs rise, stocks fall; emerging stocks hit 12-day low

Fri Aug 1, 2014 6:54am EDT

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Aug 1 (Reuters) - Russia's debt insurance costs rose to their highest since early May and the country's stocks fell on Friday after the European Union announced the details of its sanctions on Moscow.

Broader emerging stocks hit 12-day lows, with further weakness coming after the U.S. Federal Reserve sounded more hawkish on interest rates earlier this week, taking the shine off higher-yielding assets.

Russia's top lender Sberbank dropped 2.4 percent down, while shares in Russia's second-largest bank VTB fell 4 percent, hit by EU sanctions restricting their access to foreign capital over Moscow's role in Ukraine.

Index compiler MSCI said it was consulting investors over deleting VTB from the MSCI Russia index.

Moscow's dollar-denominated RTS index fell nearly 1.7 percent, and its rouble-traded MICEX dropped 1.3 percent.

Russia's 5-year credit default swaps rose 6 basis points to 243 bps, their highest since early May, according to Markit.

The rouble was stable against the dollar, however.

"We will still have to see over time how big the impact will be," said Thu Lan Nguyen, an emerging markets analyst at Commerzbank, adding that "there was a little bit of relief that the sanctions were not even tougher - the rouble is holding its ground quite well."

The MSCI emerging stocks index fell nearly 1 percent to 12-day lows after testing a three-year high earlier this week, and was on course for a loss of more than 2 percent this week.

Markets were also nervous ahead of key U.S employment data later on Friday.

Central European currencies and stocks also extended recent losses, with the zloty hitting a 10-week low against the euro as Poland's manufacturing activity shrank and the country said the impacts of Russia's crisis cut its growth.

Argentina's dollar discount bond due 2033 fell more than 2 points to 86 after the country defaulted late on Wednesday for the second time in 12 years.

A fresh U.S. hearing over the debt dispute between Argentina and holdout investors has been scheduled for Friday.

"The market seems to believe that they can reach agreement, but it will not be immediate, probably for the start of 2015," said Olivier De Timmerman, a fixed income fund manager at Luxembourg-based KBC Asset Management.

The Turkish lira slipped to a 1-1/2 month low against the dollar after weaker than expected manufacturing PMI and a drop in exports to Iraq, the country's major trading partner.

Bulgaria's debt insurance costs rose by 2 bps to 130 bps, their highest since July 8, according to Markit.

Bulgarian bank Corpbank's dollar bond due Aug 8 rose 2 points but remained in deeply distressed territory at a bid price of 30, on expectations of a default .

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 Andrew Winterbottom; Editing by Toby Chopra)

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