| LONDON, Sept 5
LONDON, Sept 5 The Indian rupee's 1.5 percent
rebound led emerging markets broadly higher on Thursday but the
growing likelihood of U.S. stimulus rollback dampened gains and
Polish assets were dented by a controversial pension reform
The rupee's gains were driven by moves from Indian officials
to deal with the spillover from the Fed's plans to reduce its
bond buying, while markets were also watching a meeting of the
G20 bloc of world powers for measures to combat the currency
A $100 billion BRICS fund to steady currency markets,
announced at the summit by Russia and China, had limited impact
on cautious investors.
Many markets are remaining on pause as a U.S. airstrike on
Syria appeared to be a step closer, while a strong figure in the
U.S. non-farm payrolls data on Friday could settle the debate in
favour of Fed policy withdrawal.
"Sentiment on emerging markets is so fragile it can turn on
a single headline," said Stanislava Pravdova, an analyst at
Danske Bank in Copenhagen. "Data has told us the Fed will start
tapering but the fear for emerging markets is (the Fed) will be
more hawkish than the markets are pricing."
India's rupee rose to one-week highs versus the dollar
however after new central bank governor Raghuram Rajan,
an ex-IMF chief economist, announced a series of financial
Mumbai stocks jumped 2 percent, outperforming
broader emerging equity index which rose just 0.4
percent. Ten-year bond yields eased 10 basis points after the
previous session's 20 bps fall.
But the rupee move stood out in an otherwise lacklustre
market where U.S. car sales data, latest in a series of upbeat
U.S. numbers, hardened up expectations the U.S. Federal Reserve
will start reeling in its stimulus this month.
That has pushed up 10-year U.S. yields to 2.94 percent, the
highest since 2011.
The stimulus issue is being mulled at the G20 with China and
Russia urging the Fed to be cautious. At $100 billion, the
proposed BRICS fighting fund is much smaller than the $240
billion originally envisaged and officials said it would not be
functional for some time yet.
Stuart Culverhouse, head of research at Exotix said he did
not expect the G20 to make much impact.
"It's difficult to coordinate anything in talking shops for
international policy," he said. "Some emerging markets have been
looking for better international coordination of monetary policy
to protect their currencies, but I don't imagine U.S.
policymakers building inflation in Brazil into their policies."
Many argue still-loose global monetary conditions and
economic recovery will help emerging markets. Japan maintained
its monetary stimulus on Thursday, while euro zone's central
bank is expected to signal again that its interest rates will
remain low for a while. Britain kept policy unchanged.
While recovery in the developed world is historically a
positive for emerging markets, Danske's Pravdova said: "It will
help but there is a lag. We won't see a pickup in EM before next
In emerging Europe, the Turkish lira fell to a record low
hit by the prospect of military action against
neighbouring Syria, the rising oil price and the central bank's
refusal to raise rates to defend the currency.
The Polish zloty meanwhile fell 0.3 percent versus
the euro and five-year bond yields rose to 10-month highs after
the government told private pension funds to transfer the bonds
they hold to the state - one-fifth of the total - while
abolishing a rule that required all citizens to contribute.
Polish stocks fell more than 1 percent
The overhaul will help Poland push down public debt and
boost public spending but analysts say the move will marginalise
the private pension system, distort markets and dent Poland's
reputation as a pro-market haven.
Societe Generale analysts advised clients to sell zloty.
"The government's decision is disappointing for the market
and has undermined investor confidence," they wrote.
"It will negatively affect liquidity on the bond market and
will make it even more dependent on foreign investors, whose
share of the debt market will rise in line with the cancellation
of domestic-held bonds."
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )