| LONDON, Sept 3
LONDON, Sept 3 Russian and Ukrainian bonds
rallied on Wednesday, and Moscow-listed shares leapt 4 percent
after Kiev said a "permanent ceasefire" had been agreed in the
Donbass area, the news also sparking gains across emerging
The Kremlin watered down the talk of a formal ceasefire, but
it confirmed that steps for peace had been discussed.
Emerging stocks rose more than 1 percent
surpassing three-year highs hit last month, after the ceasefire
reports as well as Chinese data that showed a rebound in
services activity. The data pushed Chinese domestic stocks
to their highest since December 2013.
The biggest gains came in emerging Europe, the region most
exposed to the conflict in Ukraine, after Ukraine's President
Petro Poroshenko said in a statement that he had reached a deal
with Russia's Vladimir Putin following a telephone conversation.
Pro-Russian separatists have been battling Kiev's forces in
the mainly Russian-speaking Donbass region, which contains most
of Ukraine's heavy industry and provides almost a fifth of the
country's economic output. The prolonged conflict had led to
fears that the country would be forced to restructure debt.
Russian debt prices had also weakened as the European Union
had mooted banning investors from buying new sovereign debt if
Moscow failed to end its involvement in eastern Ukraine.
RBS strategist Tatiana Orlova said the ceasefire reports
were "very positive news for the market and unexpected too,
because in the past 10 days, the geo-political crisis seemed to
"The devil is in the detail but if a ceasefire holds that is
a very serious positive for securities everywhere, especially in
places such as Poland," Orlova added.
Ukraine's dollar bonds rallied even more, jumping around 2-3
cents on the dollar
The country's hryvnia currency was flat after central bank
liquidity tightening measures pushed it to one-month highs of
around 12.5 per dollar on Tuesday but forwards price it to
weaken back to around 14 in six months time
Russian sovereign dollar bonds rallied 1.5-2.0 cents across
the curve while credit default
swaps (CDS) fell 30 basis points, according to data from Markit.
Dollar bonds from state-run oil firm Rosneft jumped 1.8 cents.
Russia has also cancelled debt auctions six weeks running
but Orlova said a bigger concern was that state-run companies -
including Rosneft - would be reliant on state help to repay debt
if barred from Western capital markets.
"Six weeks (out of rouble bond markets) is not a big problem
for Russia's finance ministry but it all depends on developments
in the oil market where prices have been dropping," Orlova said.
Russian shares rose more than 4 percent while the
rouble rose 1.5 percent against the dollar.
Peace hopes boosted Polish and Budapest stock exchanges more
than 1.5 percent each , the Warsaw index hitting
a six-month high.
Both markets have lagged broader emerging equities this
year, partly because of the growth gloom but also because of the
fallout from the Ukraine instability.
Greek and Turkish shares also rose around 0.7 percent
. The zloty and forint both firmed 0.3 percent to the
"Apart from the fact that this would come as a major relief
for the whole Ukrainian population, this would be a huge
development and a massive supportive for EMEA asset prices if
true," Commerzbank analysts said in a note.
In domestic news, Poland's central bank is expected by
analysts to keep interest rates on hold though forwards are
pricing a 25 basis point cut, on back of soft growth and
inflation. However the central bank is widely expected to
prepare markets for a cut in October.
In Turkey, data showed consumer prices rose well above
target inflation rates but was seen having little impact on
monetary policy after the central bank cut overnight lending and
borrowing rates last month to appease the government while
keeping its benchmark interest rate steady.
The lira firmed half a percent to the dollar.
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 Carolyn Cohn; Editing by Hugh Lawson)