* Ukranine’s hryvnia down 4 percent vs dollar on day
* Russian rouble at five-year dollar low
By Sujata Rao
LONDON, Feb 26 (Reuters) - Ukraine’s hryvnia tumbled 4 percent on Wednesday to 10 per dollar on Wednesday as political uncertainty mounted, its weakness spilling into the Russian rouble, taking that currency to a fresh five-year dollar low.
Broader emerging assets however traded broadly in positive territory on the back of a smaller fall in the Chinese yuan than previous sessions.
Ukraine remains without a settled government several days after the ouster of President Viktor Yanukovich, raising concerns that the country will fail to tap outside financial support in time to repay debts as its own hard currency reserves dwindle.
The hryvnia’s latest fall takes year-to-date losses on the once tightly controlled unit to almost 20 percent against the dollar, more than any other major emerging currency in 2014. Bonds are also falling, with the 2017 dollar issue now having erased over half its Monday gains.
“The whole political picture in Ukraine has become even more blurred than before,” said Simon Quijano-Evans, head of emerging markets research at Commerzbank in London.
“As long as there is no clear resolution on who is in charge and as long as there is no unity among global policymakers on resolving the issues, it is impossible to say what happens to asset prices,” he added.
Reflecting the fears, debt insurance costs for Ukraine jumped 76 basis points on the 5-year credit default swaps market, Markit said.
The moves are also weighing on the neighbouring rouble which fell half a percent to the dollar and to a record low versus the euro . Russia holds $3 billion worth of Ukrainian eurobonds issued last December which could end up in default if certain bond covenants are breached.
“These Ukraine concerns (are weighing) on the rouble in the first place,” said Maxim Korovin, fixed income analyst at VTB Capital in Moscow, adding investors may be betting against the rouble as a way to reduce exposure to the region and so indirectly hedge their Ukraine risk.
“If you short the rouble and the rouble is weakening that will offset your loss,” he said.
The rouble is at a record low against the euro.
Elsewhere, investor focus remained on the Chinese yuan which has fallen more than 1.5 percent since mid-January, weakening below the central bank’s official daily fixing for a second day in a row.
Late in the session, it clawed back some of the declines.
Asian currencies gained after the yuan’s smaller fall, led by the Korean won while MSCI’s emerging equity index rose 0.4 percent after two days of losses as Chinese shares also snapped a four-day losing streak .
“Any fears that the (U.S. Federal Reserve) is going to tighten aggressively has been replaced by what’s happening in China,” said Neil Shearing, head of emerging markets research at Capital Economics in London.
While some view the Chinese moves as a tacit monetary policy loosening, others reckon they are aimed at preparing the market for more reform and also at stamping out speculative foreign positions in the currency.
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