EMERGING MARKETS-EM stocks set for worst week in over two months as yields, dollar weigh

By Utkarsh Hathi

Oct 2 (Reuters) - Emerging-market stocks were heading for their biggest weekly loss in over two months on Friday, as a surge in Treasury yields and a stronger dollar weighed on sentiment, while currencies edged higher ahead of data on US job growth that could give clues on the Federal Reserve's monetary policy path.

Appetite for riskier EM assets has shown signs of waning in recent days, as investors seek refuge in the US dollar, which hovered near a one-year high. Rising Treasury yields and the Iran war have underpinned demand for the greenback, while concerns over higher energy costs have added to inflation worries.

Oil prices eased on Friday, as traders focused on signs of recovering Middle Eastern supplies. Still, with no resolution in sight between the US and Iran, markets are pricing in a sustained disruption to crude supplies. O/R

"It's a concern for EM markets in the short term if oil prices continue to spike, but medium term EM could be in a bit of trouble as well as the effects of the Iran war and increased inflation work their way through the food chain," said Michael Field, chief equity market strategist EMEA, Morningstar.

"It could cause some investors to unwind those (long) positions."

MSCI's index tracking EM stocks .MSCIEF slipped 0.1%, with Indonesia's stocks on course for their steepest weekly decline in more than three months after a new exchange rule reducing the minimum share price took effect on Monday.

The change allowed previously floor-bound stocks to trade lower, with several posting declines near the exchange's 15% daily limit.

Indonesia's benchmark stock index was down 3.3% for the week, though it rose 0.5% on the day. The rupiah was down 0.4%.

MSCI's index tracking EM currencies .MIEM00000CUS rose 0.17%.

South Africa's rand weakened 0.1% and was hovering near a two-month low as the currency's carry appeal faded over inflationary pressures and concerns about global growth.

South Africa's benchmark stock index .JTOPI gained 1%, tracking firmer precious metal prices.

Elsewhere in Asia, markets were mixed, with technology-heavy South Korean and Taiwanese stocks and currencies advancing, while broader sentiment remained constrained by higher US yields.

EMERGING EUROPE IN FOCUS

An index tracking equities in emerging Europe .MIME00000PUS was up 0.1%, but on track for its worst week since late April.

Hungarian equities .BUX rose 0.9%, though they remained on track for their biggest weekly decline in over a year, while Romanian .BETI stocks were up 2.5%.

Turkish stocks .XU100 advanced 0.7%, extending their recovery after sharp losses in September following the country's biggest-ever market-disrupting fund crisis.

JPMorgan analysts said on Friday that the crisis brings "meaningful downside risks" to Turkey's economic growth forecast of 3% in 2026.

Regional currencies were subdued against the euro, with Hungary's forint down 0.1%.

Attention later in the day turns to Romania, where S&P Global is due to review the country's sovereign credit rating amid a protracted political crisis.

Romania's Prime Minister-designate Siegfried Muresan failed to win a parliamentary vote of confidence earlier this week, the third failed nomination by centrist President Nicusor Dan since a pro-European broad coalition government collapsed nearly five months ago.

"A downgrade, particularly a loss of investment-grade status, would likely trigger renewed pressure on Romanian assets and a sharper reaction in both FX and bonds than seen this week," said Frantisek Taborsky, EMEA FX & FI strategist, ING.

The Romanian leu was muted after hitting its lowest level against the euro on Thursday.

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