April 3, 2014 / 9:15 AM / in 4 years

EMERGING MARKETS-Stocks dip from 2014 highs on service sector data

LONDON, April 3 (Reuters) - Emerging stocks dipped from 2014 highs on Thursday, dulled by weakness in emerging market service sector data, but remained in the black for the year on waning investor worries over Russia and Ukraine and a dash towards cheap markets.

Support for Ukraine from the IMF and other Western governments has reassured investors following Russia’s annexation of Crimea.

Russia’s services sector, however, contracted sharply, to 47.7 in March from 50.8 in February, data showed on Thursday, and South African services data also fell.

“(Weak PMI) forced people to pare back long emerging market positions,” Peter Attard Montalto, emerging markets economist at Nomura, said.

The MSCI emerging equities index rose to its highest since mid-December before trimming gains.

Stocks have jumped by 6.6 percent in the past two weeks, however, boosted also by a reconsideration of the sector by investors due to cheap valuations.

Chinese stocks dropped 0.7 percent on Thursday on profit-taking in property stocks, although service sector activity ticked up in March.

Emerging sovereign debt spreads edged out 1 basis point to 316 bps over U.S. Treasuries. But spreads remain close to their narrowest levels since May 2013, when then-Federal Reserve chairman Ben Bernanke signalled a winding down of the Fed’s bond-buying programme.

Frontier market borrowers Ecuador, Pakistan and Zambia are meeting investors this week to discuss possible dollar-borrowing plans. Even Ukraine is considering issuing a 5-year eurobond in the second half of this year.

Most emerging European currencies were steady, with the Turkish lira close to the year’s highs following data showing a larger-than-expected rise in inflation last month.

The rand fell 1 percent, however, with services PMI falling to 50.2 in March from 51.5 in February.

Rising U.S. Treasury yields could also put renewed pressure on emerging markets, analysts said, as investors bring their money home.

For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Reporting by Carolyn Cohn and Natsuko Waki; Editing by Louise Ireland)

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