* S&P 500 index down 2.6 pct on week, worst week since June
* Argentine peso and Turkish lira slump
* Emerging market stocks on track for worst week since Nov.
* Worries on China's growth, Fed tightening drive markets
By David Gaffen and Francesco Canepa
NEW YORK/LONDON, Jan 24 A full-scale flight from
emerging markets accelerated on Friday, as investors sold shares
in major markets and bought safe-haven assets such as U.S.
Treasuries, the yen and gold.
On Wall Street, the benchmark S&P 500 stock index tumbled
2.0 percent on the day, and ended the week down 2.6 percent, its
worst week since June 2012.
Concerns about slower growth in China, reduced support from
U.S. monetary policy and political problems in Turkey, Argentina
and Ukraine drove the selling.
The Turkish lira hit a record low as the cost of
insuring against a Turkish default rose to an 18-month high.
Argentina's peso fell again after the country's central bank
abandoned its support of the currency.
The declines mirror moves from last June when developing
country stocks fell almost 18 percent over about two months and
hit global shares after the Federal Reserve indicated it would
soon reduce its bond-buying.
"The world is suffering from the emerging markets' flu,"
said Michael James, managing director of equity trading at
Wedbush Securities in Los Angeles.
The broad nature of the selloff combines country-specific
problems with the reality that reduced U.S. Federal Reserve bond
buying reduces the liquidity that has in the past boosted
higher-yielding emerging markets assets.
The Fed last month pared its monthly purchases of bonds by
$10 billion to $75 billion. The U.S. central bank will hold a
policy meeting on Tuesday and Wednesday and is widely expected
to again pare its stimulus program.
"We expect the emerging market selloff to get worse before
it starts getting better," said Lorne Baring, managing director
of B Capital Wealth Management in Geneva. "There's definitely
contagion spreading and it's crossing over from emerging to
developed in terms of sentiment."
Activity was heavy in exchange-traded funds focused on
emerging markets. The iShares Morgan Stanley EM ETF was
the second-most active issue in New York trading, trailing only
the S&P 500's tracking ETF.
An MSCI index of emerging market shares fell as
much as 1.6 percent. Since mid-October, the index has lost more
than 9.0 percent. The MSCI all-country world equity index
was down 2.3 percent for the week, its worst
Funds have continued to flee emerging market equities. In
the week ended Jan. 22, data from Thomson Reuters Lipper service
showed outflows from U.S.-domiciled emerging market equity funds
of $422.41 million, the sixth week of outflows out of the last
Emerging market debt funds saw a 32nd week of outflows out
of the last 35, with $200 million in net redemptions from the
250 funds tracked by Lipper.
"It's just the final realization that they can't continue to
grow as an economy the same way they did before," said Andres
Garcia-Amaya, global market strategist at J.P. Morgan Funds in
New York. "It's a combination of less liquidity for these
countries that depended on foreign money and China kind of
throwing some curve balls as well."
U.S. stocks sank, with the Dow Jones industrial average
ending down 318.24 points, or 1.96 percent, at 15,879.11.
The Standard & Poor's 500 Index was down 38.17 points, or
2.09 percent, at 1,790.29. The Nasdaq Composite Index
was down 90.70 points, or 2.15 percent, at 4,128.17.
In a signal that the selling of stocks may be overextended,
investors were willing to pay more for protection against a drop
in the S&P 500 on Friday than for three months down the road.
The last time the spread between the CBOE volatility index
and three-month VIX futures turned negative was in
mid- October, shortly after a 4.8 percent pullback in the S&P
500 opened the door to the last leg of the 2013 market rally.
European shares suffered their biggest fall in seven months.
The FTSEurofirst 300 index of top European shares
closed down 2.4 percent at 1,301.34 points. The index has now
erased all its gains for 2014, and is down 1.1 percent on the
Spain's IBEX index, highly exposed to Latin America,
was the worst-hit in Europe, falling 3.69 percent.
The dollar index was flat, a day after falling 0.9
percent against a basket of major currencies, including the
euro, yen, Swiss franc and sterling. That was its worst one-day
performance in three months.
A flight to safety lifted currencies backed by a current
account surplus, such as the Japanese yen and Swiss franc, and
highly rated government bonds. German Bund futures rose and
10-year U.S. Treasury yields hit an eight-week low
below 2.75 percent.
Gold hit a two month high, gaining for a fifth
straight week, as weaker equities burnished its safe-haven
appeal. Spot gold rose to as high as $1,272.70 from $1263.95 on