* Despite gains on day, emerging stocks on track for monthly loss
* Turkey’s lira weakened nearly 10 percent against dollar in May
* MSCI China index inclusion supports China stocks
By Karin Strohecker
LONDON, May 31 (Reuters) - Strong manufacturing data from China and receding angst over Italy’s political crisis helped emerging stocks snap a two-day losing streak on Thursday while currencies fared more mixed despite a softer dollar.
MSCI’s emerging market index rose 1 percent - its biggest daily gain in three weeks - with Asian heavyweight Hong Kong and mainland China stocks up 1.5 percent or more.
The gains came after data from China showed growth in its vast manufacturing sector accelerated strongly and well above forecasts in May to an eight-month high, easing concerns about an economic slowdown in the world’s second largest economy.
Meanwhile MSCI’s inclusion of some 230 China-listed shares in its global indexes from Friday also helped sentiment even as the clash with the United States over trade simmered.
Investors also took heart from Italy’s two anti-establishment parties renewing efforts to form a coalition government rather than force the country into holding elections for the second time this year.
The prospect of political turmoil in Italy that could spill over into a wider euro zone crisis had roiled global financial markets earlier in the week.
However, over the month, MSCI’s broader emerging index was on track for a fall of more than 3 percent in May - its fourth straight month of losses.
“In the past few weeks, emerging market assets have come under pressure. We saw lower equity, higher bond yields and falling currency in many emerging market countries,” Alain Bokobza, head of global asset allocation at Societe Generale wrote in a note to clients.
Currencies fared more mixed with many struggling to booking gains against a weaker dollar on the day and some on track for losses over the month.
Indonesia’s rupiah strengthened 0.8 percent to a one-month high after the central bank raised its benchmark interest rate for the second time in two weeks on Wednesday and opened the door for further hikes to boost the fragile currency and contain capital outflows.
But Turkey’s lira weakened 0.3 percent, retreating from the near two-week highs reached on Wednesday in the wake of a number of central bank emergency measures and ignoring the latest data showing the number of foreign visitors in Turkey surged 28 percent year-on-year in April.
The lira is still set to end the month down almost 10 percent, its worst performance since November 2016.
The Mexican peso weakened 0.3 percent after an opinion poll showed presidential frontrunner Andres Manuel Lopez Obrador extending his lead well beyond his nearest rivals with just a month to go before the July 1 election.
Obrador, a runner-up in the previous two elections, though fears that he could destabilize the economy contributed to his defeat. Yet this time frustration over corruption, rising violence and tepid growth have all helped lift his bid, but his ascent has sent jitters through markets.
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Reporting and graphic by Karin Strohecker