EMERGING MARKETS-EM stocks set for quarterly losses; Turkey selloff deepens

By Utkarsh Hathi

Sept 30 (Reuters) - Emerging market stocks were marginally up on Wednesday, but were headed for quarterly losses, while a selloff in Turkish stocks deepened in the wake of the country's biggest-ever fund crisis.

An index tracking currencies of emerging markets also inched up as investors awaited key US economic data.

Turkish equities have remained under pressure since an investigation earlier this month into alleged market manipulation involving investment funds. The authorities on Tuesday attempted to restore investor confidence through greater oversight.

The Turkish benchmark, BIST 100 .XU100, slipped 0.8% on Wednesday and has shed nearly 15% this month, its steepest monthly decline since March 2020.

"It's something of a perfect storm. The macro environment has become more challenging, and the local events, which triggered forced deleveraging and liquidation has added further pressure on the market," said Rohit Chopra, portfolio manager at Lazard Asset Management.

The Turkish lira was muted against the dollar.

Elsewhere in emerging Europe, inflation in Poland accelerated beyond the government's upper limit in September, data showed on Wednesday, increasing pressure on the central bank to consider tightening monetary policy.

The National Bank of Poland held rates unchanged for a fifth straight meeting earlier this month.

"There is clearly an expectation that the central bank at one point may have to hike interest rates again," said Tilmann Kolb, analyst at UBS.

"You don't want to get into a situation where you appear as one of the most dovish central bank in the region, or perhaps even on a global level."

The Polish zloty was subdued against the euro, and on track for a third consecutive quarterly decline. Hungary's forint gained 0.1%, rebounding from a four-week low.

The forint has outperformed peers this year as investors increasingly price in an eventual path towards euro adoption. The currency has come under pressure in recent weeks, however, and is set for first quarterly drop in seven quarters.

Hungary's central bank deputy governor, Zoltan Kurali, saidat a media conference on Tuesday that the country shouldn't delay joining the euro area's ERM-2 if the government fiscal plans look credible.

ERM-2 is the EU framework that pegs non-euro member currencies to the euro within defined fluctuation bands as a prerequisite for eurozone entry.

Among the region's equities, Polish blue-chip stocks .WIG20 rose 1%, while the Hungarian benchmark.BUX slipped 0.8%

MSCI's index tracking EM stocks .MSCIEF rose 0.1%, though it was heading for quarterly losses after stellar gains in the previous quarter. Its currency equivalent .MIEM00000CUS also edged 0.1% higher.

South Africa's rand was little changed against the dollar, while its stocks .JTOPI declined 0.6%.

Elevated US Treasury yields and higher oil prices have pressured EM assets in recent days, keeping investors cautious about the outlook amid a data-heavy week and diverging policy signals across developing economies.

"It has been quite instructive in seeing how under the hood emerging market currencies have been and there can still be quite some differences in performance based on what policy makers' decisions are," said Kolb.

Investor focus now shifts to the US Personal Consumption Expenditures (PCE) price index data, the Fed's preferred inflation gauge, due later in the day, for further clues on the interest rate outlook.

Asian assets were mixed, with tech-heavy South Korean equities .KS11 logging their biggest quarterly drop in more than six years.

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