UPDATE 1-MSCI warns Argentina index could be booted from EM index

(Adds detail from press release, background on Argentina)

June 23 (Reuters) - MSCI Inc, the world’s largest index provider, warned on Tuesday that the MSCI Argentina Index could be removed from the MSCI Emerging Markets Index should it become harder for foreign investors to access its stock market.

In a statement, MSCI also warned that Turkey could be removed from the Emerging Markets Index, and it said it would reclassify its Iceland index from stand-alone markets to frontier markets.

MSCI’s warning about Argentina comes after stalled talks between the South American country’s government and creditors to restructure $65 billion in debt.

Argentina imposed tough capital controls last year after a market crash led to a dramatic pickup in foreign currency demand.

“The Argentinian authorities must realize that the prolonged application of capital controls or the introduction of further capital controls may force the reclassification of the MSCI Argentina Indexes from Emerging Markets status to either Frontier Markets or Standalone Markets status,” MSCI said.

Indexes can funnel billions of dollars from index-tracking funds into developing economies. Changes in the stocks and bonds that make up the indexes can change where those funds go, and in what amount.

MSCI said it was reclassifying the Iceland index to Frontier Markets after the country’s removal of capital controls last year made it easier for foreign investors to access Iceland’s equity market.

MSCI said Turkey could be reclassified as Frontier Markets or Standalone Markets if already deteriorating access to the country’s equity market becomes worse. (Reporting by Noel Randewich; Editing by Sandra Maler and Jonathan Oatis)