EMERGING MARKETS-Stocks, FX rise as US election result sends dollar, yields lower

By Sudeshna Ghoshal and Ragini Mathur

Nov 4 (Reuters) - MSCI's emerging-market stock index stabilised on Wednesday, recovering from sharp early losses as a weaker US dollar following Democrats' sweeping US midterm election victory supported demand for developing-market assets.

In a major setback for US President Donald Trump, Democrats seized control of both the Senate and House, scoring sweeping victories in Republican strongholds.

The outcome pushed the dollar down 0.3%, while Treasuries gained. The benchmark 10-year Treasury yield fell 5 basis points.

"In the longer term, ultimately, the relationship between risk premiums and whether emerging market is more attractive than developed market does rely to some degree on the strength of the dollar and the interest rates," said Vera German, co-manager of the Neuberger Emerging Markets Equity fund.

MSCI's broad emerging-market equity index .MSCIEF rose 0.4%, recovering after falling as much as 1.8% earlier in the session. South Korean shares .KS11 reversed earlier losses to close 0.6% higher, while Taiwan's .TWII pared declines but ended 0.8% lower as some AI-linked shares remained under pressure.

Markets welcomed the end of election uncertainty and saw Democratic control of Congress as likely to restrain fiscal spending and increase oversight of AI regulation. Analysts said this could cool growth and lessen the need for further Federal Reserve rate hikes, taking pressure off Treasury yields and the dollar. US/

MSCI's emerging-market currency index .MIEM00000CUS rose 0.8%.

Chinese shares also rebounded sharply, with the benchmark Shanghai Composite Index .SSEC surging 2.2%, its strongest one-day gain since early April, after reversing earlier losses.

The Mexican peso posted its biggest jump since April.

Elsewhere, Ukraine's international debt advanced 1.1 cents. The 2035 bonds carrying a 4.5% coupon were bid at 62.1 cents on the dollar, their highest level since late September, according to Tradeweb.

Middle Eastern sovereign bonds gained as well, led by Saudi dollar debt, which rose about 0.5 cent, while Qatari bonds posted similar gains despite lower oil prices on Wednesday. O/R

DATA, CENTRAL BANK DECISIONS IN FOCUS

In emerging Europe, Hungary's stock index .BUX rose 1.6% and Czech shares .PX gained 1.2%. Czech consumer prices increased 0.4% in October compared with the previous month, leaving annual inflation at 2.4%, below the 2.5% annual increase and 0.5% monthly rise forecast in a Reuters poll.

The Czech National Bank meets on Thursday, and the overwhelming majority of analysts in a Reuters poll last week forecast a 25-basis-point increase in the main rate.

Regional currencies were broadly muted against the euro.

Investors were also awaiting monetary-policy decisions from Brazil and Poland later in the day, with both central banks widely expected to leave rates unchanged. Poland's meeting follows renewed political tensions between Prime Minister Donald Tusk and the president over appointments to the Constitutional Tribunal.

South African markets were closed for local government elections, taking place amid public frustration over corruption, crime and poor public services, which threatens to inflict further losses on the ruling African National Congress. The rand strengthened 0.7% against the dollar.

Back in Asia, Indonesian stocks .JKSE clawed back some earlier losses and the benchmark index was up 0.3%. Investors assessed newly announced sanctions for stock-market violations by the financial regulator, alongside lingering concerns after MSCI's warning last month that it could downgrade Indonesia's stock market from "emerging" to "standalone" status.

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