* Emerging stocks jump over 2 pct, debt spreads snap in
* Hungary forint rises 1 pct vs euro, yields drop
* Egypt pound at nr-7 year low as elections start
By Carolyn Cohn
LONDON, Nov 28 Talk of International
Monetary Fund aid for Italy, swiftly denied by the IMF,
triggered a turnaround in risky emerging markets on Monday after
days of losses.
In broadly improved markets, which analysts said still
looked fragile given scepticism over the chances of a swift
resolution of Europe's debt crisis, Hungary made a strong
recovery boosted by its own move to turn to the Fund.
The end of the U.S. Thanksgiving weekend also encouraged
investors to change tack, and several emerging central banks
hold rate decisions this week, adding to reluctance to take
"This is a very short-term correction which is very common
after weeks of sell-off," said Cristian Maggio, emerging markets
strategist at TD Securities.
"There is no material solution of the euro zone crisis and
we are unlikely to see anything like that for the next several
The MSCI emerging equities index rose over 2
percent, after three successive sessions of hitting multi-week
Emerging Europe has been looking particularly vulnerable to
the euro zone crisis. The Thomson Reuters emerging Europe index
rose 1.5 percent, after hitting 18-month lows on
Russian stocks rose over 3 percent to one-week highs
as oil climbed on Iran supply worries.
Iran's parliament voted on Sunday to reduce diplomatic
relations with Britain, with one lawmaker warning that Iranians
angered by London's latest sanctions could storm the British
embassy as they did the U.S. mission in 1979.
Emerging sovereign debt spreads snapped in 16 basis
points to 386 bps over U.S. Treasuries, narrowing back below the
psychologically key 400 bps level.
Emerging currencies were generally stronger, with the rand
up 2 percent against the dollar and the forint rising
nearly 2 percent against the euro.
Hungary's currency and debt have been under severe pressure
on concerns about its debt burden and unorthodox policy steps.
Hungary's domestic bond yields fell by 50 bps on Monday's
improved mood after the economy minister said late on Friday the
government would cooperate with the IMF, EU and banks to
stabilise the economy.
Hungary's debt insurance costs hit record highs on Friday,
but fell 14 bps on Monday to 631 bps in the five-year credit
default swap market, according to Markit.
Hungary's central bank makes its monthly policy decision on
Tuesday, and speculation of a rate hike was also supporting the
"The central bank faces a tough choice between leaving rates
on hold or hiking rates aggressively...We favour the first
option but believe that the second will be debated in depth,"
said Unicredit analysts in a client note.
"The issue at this stage is clear -- a need to stabilise
The zloty recovered some ground from its lowest in
nearly 2-1/2 years set on Friday.
However, the shekel hit 14-month lows on expectations
of a rate cut later in the session.
"The market is pricing about 70 percent probability of a cut
today and a full 25 bps cut within three months," said analysts
at Societe Generale in a client note.
Saboteurs blew up Egypt's gas pipeline to Jordan and Israel
on Monday, witnesses and security sources said, a few hours
before Egypt holds its first free election since President Hosni
Mubarak was toppled in February.
The Egyptian pound hit its highest in nearly seven
years, despite a 100 bps hike in the overnight deposit rate last
week, the first rate rise in over two years.
Egypt's debt insurance costs bucked a generally falling
trend on Monday, rising 6 bps in the five-year credit default
swap market to 555 bps, according to Markit.