By Asher Levine and Carolyn Cohn
RIO DE JANEIRO/LONDON Feb 18 Emerging market
stocks dipped on Tuesday, led by a drop in Chinese shares, while
a fresh outbreak of violence drove Ukraine's currency towards
five-year lows and weighed on its bond prices.
Chinese stocks fell around 0.8 percent as the
central bank (PBOC) drained 48 billion yuan ($7.92 billion) from
the country's money market after data at the weekend showed new
loans surged to their highest in four years in January.
The outlook for the world's second-largest economy is key
for exporters from emerging markets.
"The PBOC's decision to drain liquidity using repos is a
reminder that the tightening bias remains in place and the
desire to curb credit growth remains intact," Kit Juckes,
strategist at Societe Generale, said in a client note.
"This should be seen as a commitment to allow the ongoing
slow and steady slowdown of the Chinese economy to continue."
The MSCI emerging equities index dipped 0.25
percent after hitting 3-1/2 week highs in the previous session.
Emerging sovereign debt spreads tightened by 2 basis
points to 373 bps over U.S. Treasuries.
Several thousand anti-government protesters clashed with
police near Ukraine's parliament on Tuesday, torching a police
truck and hurling stones in the worst street violence in the
capital Kiev in more than three weeks.
The increasing unrest led Ukraine's 2023 dollar-denominated
bond to reverse early gains, falling 1.780 point in price to bid
82.005. The bond had risen on Monday after Russia
said it would buy a $2 billion bond from Ukraine by the end of
Ukranian state and oil and gas company Naftogaz saw its
September 2014 bond gain 0.8 points to bid to 89.75
Naftogaz has paid back part of its 2013 debt to Russia's
Gazprom, a government source said on Tuesday. The debt which
Naftogaz owes to the Russian energy firm has made investors
nervous that it will default on its dollar bond.
On international markets, the cost of annually insuring
Ukranian debt over five years on Tuesday rose 25
basis points from Monday's close to 1,176 bps, according to
The country'ss volatile hryvnia currency fell 0.8
percent towards recent five-year lows as Ukrainian importers
were allowed to buy dollars on the market again after controls
imposed on them by the central bank expired.
Elsewhere in Europe, Turkey's lira weakened slightly
against the dollar after the central bank kept interest rates on
hold Tuesday, as expected.
"Reassuringly uneventful," wrote Capital Economics' William
Jackson in a client note.
Turkey's central bank hiked rates sharply last month to help
stabilise the lira after a widespread sell-off in emerging
markets. The sell-off was triggered by the outlook for
diminished U.S. monetary stimulus and a local political crisis.
"Given the recent volatility in the financial markets, it's
tricky to predict future moves in Turkish interest rates,"
Jackson said. "But we think the country's large current account
deficit and high level of short-term external debt mean it's
more likely than not that the central bank will need to maintain
tight monetary conditions."
Hungary's forint weakened 0.7 percent against the
euro after the central bank surprised investors by cutting
interest rates by a more-than-expected 15 basis points to a new
low of 2.7 percent on Tuesday.
The forint's decline of about 4.3 percent against the euro
this year is largely due to global economic factors but the
central bank's interest rate cuts have also contributed,
Hungarian Economy Minister Mihaly Varga said on Tuesday.
Many Latin American stocks retreated from recent three-week
highs as investors took profits, though Brazil's Bovespa
remained in the black, led by banking shares.
Brazil's real and Chile's peso both weakened
Chile's central bank meets later on Tuesday and is expected
to cut interest rates by 25 basis points to 4.25 percent.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )