LONDON, Dec 21 (Reuters) - Emerging stocks fell on Friday after U.S. budget talks stalled, but Romania's leu bucked the risk averse trend to hit a six-month high against the euro on signs a new government would be approved.
MSCI's emerging equities dropped 0.9 percent, pulling further away from eight-month highs as shares fell across emerging Europe. Russian shares slipped 0.7 percent and Turkish shares eased further from record highs hit earlier in the week.
The Shanghai Composite Index - the largest component of the emerging markets index - fell 0.7 percent on weakness in alcohol and resource-related sectors.
MSCI's world equity index also fell, hit by a setback in U.S. budget talks to avoid the "fiscal cliff" of automatic tax hikes and spending cuts.
"Having had a bit of optimism over the fiscal cliff we are seeing that unwind a bit and all risky assets are under pressure," said Neil Shearing, chief emerging markets economist at Capital Economics.
The Romanian leu hit its highest level since late June, helped by expectations parliament will approve Prime Minister Victor Ponta's new government on Friday, bringing some political stability as the country seeks a deal with the International Monetary Fund.
Hungarian five-year credit default swaps rose 12 basis points to 285 from 273, shrugging off a decision by rating agency Fitch to upgrade its outlook on the country - Central Europe's most indebted - to stable from negative.
Hungary's forint weakened 0.7 percent, pulling back from overnight gains.
"The Fitch move in a way reflected the market rally, the market has already responded to the improvement in Hungary's situation which was due to the general improvement in risk appetite," Shearing said.