(Refiles to clarify sourcing in 4th paragraph)
By Sujata Rao
LONDON, June 20 (Reuters) - Ukrainian bonds rose slightly on Friday, recovering from panic over possible debt restructuring though most emerging assets weakened against the backdrop of violence in oil exporter Iraq and a rise in U.S. bond yields.
Emerging stocks were set to snap two weeks of gains, falling 0.3 percent on the day despite record highs on the world equity index, and most currencies slipped, with energy importers facing the prospect of significantly higher oil prices.
The United States said it would send up to 300 U.S. military advisers to Iraq, raising the prospect of a broader military conflict. In Ukraine too, battles raged, with 300 separatist rebels reported to have been killed on Thursday.
Ukraine’s dollar bonds steadied following a mid-session plunge on Thursday after an official from the Institute of International Finance told journalists on a conference call that Kiev was looking at the possibility of restructuring debt in future but on a voluntary basis and without imposing haircuts on investors.
The 2017 bond, which fell 2.5 cents on Thursday to 97 cents, recouped losses at the end of the day and firmed another quarter cent on Friday to 99.750 cents in the dollar.
Ukraine also paid the coupon on a $3 billion Eurobond.
Societe Generale strategist Regis Chatellier said that while Ukraine did not immediately need any debt restructuring the issue was likely to come up in future.
“I don’t think it will happen now because Ukraine doesn’t want to scare investors and also, the main issue at the moment is not debt but gas supply and economic recession,” he said.
“But pressure on hard currency reserves is very high...Some years down the road they will be in a position where debt will become a problem and they will need some help with this.”
But while bond markets calmed, Ukraine’s 5-year credit default swaps have risen 35 basis points on the week, reflecting the ongoing fighting and gas supply tensions with Russia.
Russian assets failed to benefit from rising oil prices. Moscow stocks came off 4-1/2 month highs while the rouble eased from three-week highs to the dollar.
Chatellier said emerging assets had been supported in recent months by investors covering short positions. Emerging stocks for instance are up 15 percent from February lows, while dollar bond yield premia over Treasuries have snapped in 100 bps.
“Earlier it was technicals driving emerging markets. Now it’s geo-politics, that will be the case for a while,” he said.
However the lack of further sanction threats from the United States and Europe have emboldened Russian companies to approach bond markets with roadshows - Sberbank is meeting investors in London on Friday while Gazprombank is due to do so on Monday.
“There is good news in the fact that we see corporates return to hard currency issuance ... (But) it remains far from clear that Russian corporates and banks can return to rolling all external debt coming due ... given that sanctions remain in place,” Unicredit analysts wrote.
The events in Iraq and the oil price surge were also hurting Turkey where stocks pulled back 0.25 percent XU100> and 5-year CDS rose 8 bps to a one-month high, according to Markit.
Emerging markets are also pressured by the U.S. recovery that could bring forward the date of interest rate rises. Strong data on Thursday took some of the edge off the Federal Reserve’s dovish message, boosted the dollar and pushed up bond yields.
Earlier in the day, most Asian currencies eased versus the dollar and stocks fell. Chinese mainland shares posted their worst weekly loss in almost two months .
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 ) (Editing by Ruth Pitchford)