EMERGING MARKETS-Emerging stocks sail to 2-year high on weak dollar

LONDON, March 20 (Reuters) - Emerging stocks hit a two-year high and most currencies strengthened on Monday, still basking in the afterglow of the U.S. Federal Reserve meeting and shrugging off the prospect of more trade protectionism.

MSCI’s emerging market index rose 0.5 percent in its seventh straight day of rises, lifted by Hong Kong, Russia and South Africa racking up solid gains. However, stocks in Turkey, South Korea and much of emerging Europe were under pressure.

Currencies also benefited again from a weaker dollar, which has been slipping since policy makers at the U.S. Federal Reserve refrained from signalling a shift to a faster pace of monetary tightening though they delivered their expected quarter point interest rate hike last week.

“A gradual pace of monetary policy normalisation by the Fed, market optimism that the (U.S. President Donald) Trump administration will implement a substantial dose of fiscal stimulus and signs of improvement in economic activity in the emerging markets are positive factors supporting capital inflows to risky assets,” Rabobank’s Piotr Matys wrote in a note.

South Africa’s rand strengthened 0.5 percent in its fourth day of gains to hit the strongest level in nearly 20 months while Turkey’s lira added 0.3 percent.

But Russia’s rouble fell 0.5 percent, snapping a three-day winning streak, dragged down by oil prices tumbling more than 1 percent.

However, investors were wary after the world’s top finance chiefs failed to agree at a meeting over the weekend on a commitment to keep international trade free and open.

That highlighted a global shift towards protectionism, despite reiterating a warning against competitive devaluations and disorderly foreign exchange markets.

“Capital inflows to the emerging markets, however, are likely to be reversed if the Trump administration implements measures that would undermine globalisation – a major driving factor for export-oriented EM economies,” Rabobank’s Matys added.

Meanwhile, Ukraine’s dollar-denominated bonds edged lower across the curve after the International Monetary Fund postponed a decision - originally scheduled for Monday - to disburse more aid to Ukraine in order to assess the impact of an economic blockade Kiev imposed on separatist-held territory.

For GRAPHIC on emerging market FX performance 2017, see For GRAPHIC on MSCI emerging index performance 2017, see

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see) (Reporting by Karin Strohecker, editing by Ed Osmond)