EMERGING MARKETS-Stocks hover at two-month low; Indonesia, Hungary in focus

By Sudeshna Ghoshal and Johann M Cherian

Oct 19 (Reuters) - MSCI's emerging market stocks index hovered at a two-month low on Monday, as Indonesian equities logged fresh losses after the index provider said it would place the country on a path to "standalone market" status, while Hungary's forint inched higher ahead of the country's budget announcement for the coming year.

Indonesia stocks .JKSE slid 3.6% to a 2020 low, prompting the country's stock market operator to halve the daily down limit on stock prices in an effort to contain the selloff, after MSCI said it sought to cut Indonesia from its suite of investable indexes on Friday.

The local central bank is expected to announce its verdict on interest rates on Wednesday. A Reuters poll of economists expect no change, although the institution's remarks will be scrutinized for any perspectives on the latest market developments. The currency dipped 0.1% and is down over 7% for the year.

Equities in Turkey .XU100, which was also warned of a potential downgrade if reforms were not made, also succumbed to declines of about 1%. However, banks .XBANK made a comeback of about 0.3%.

More broadly, MSCI's benchmarks for emerging market stocks .MSCIEF and currencies .MIEM00000CUS were flat, with the equities index near its lowest since July 31.

The spotlight is now on Hungarian Prime Minister Peter Magyar's 2027 budget, a key test of his fiscal credibility as he seeks to bring the deficit below the EU's 3% ceiling while delivering on pledges that helped secure his landslide election victory over Viktor Orban in April.

The forint inched up 0.1%, while local stocks .BUX dipped 0.2% and international bonds were marginally lower.

"Hungarian bonds have rallied strongly in recent weeks on growing expectations that the plan will target a deficit below 5% of GDP. However, much of the good news now appears priced in, creating downside risk if the government falls short of expectations," Francesco Pesole, an FX strategist at ING, said in a note.

"Even so, the broader outlook for bonds remains positive, particularly compared with this year’s 7.0-7.5% deficit, and we expect investors to buy any dip following a sell-off."

In South Africa, the country's medium-term budget statement is expected this week, with expectations of an improving budget balance and a more favourable sovereign ratings outlook.

The rand inched up 0.2%, while the benchmark 2035 government bond was little changed.

Meanwhile in China, data showed economic growth bounced off three-year lows in the third quarter, as roaring exports offset consumers' tight grip on their wallets. The yuan edged up 0.1% to a four-year high.

Interest rate decisions are expected later this week out of China, Hungary and Turkey.