EMERGING MARKETS-EM assets set for weekly gains as investors weigh Fed hike, geopolitical tensions

By Utkarsh Hathi

Sept 25 (Reuters) - Emerging market assets were heading for weekly gains as investors balanced expectations of further Federal Reserve rate hikes and geopolitical tensions against a busy week of economic data and central bank decisions across developing economies.

US 30-year Treasury yields hovered near their highest since 2004 as higher oil prices, resilient US economy and fiscal concerns fuelled worries of persistent inflation.

Oil prices eased 0.9%, though remained elevated near $105 a barrel.

Still, MSCI's index tracking EM currencies .MIEM00000CUS rose 0.3%, heading for weekly gains as investors continued to favour the region's stronger fundamentals despite a stronger dollar.

Asian currencies were mixed, with the Korean won gaining the most, up 0.8%, while the Chinese yuan slipped 0.1%.

The Indonesian rupiah was little changed, but looked set for its steepest weekly fall since May. Bank Indonesia kept its benchmark interest rate on hold earlier this week after raising it by a cumulative 100 basis points between May and June to support the weakening rupiah.

Attention now shifts to next week's September inflation figures, with economists polled by Reuters expecting it to accelerate to 3.3% annually.

"Rising rice prices should remain a key driver, while spillovers from higher food costs are also likely to add to core inflation," said Deepali Bhargava, regional head of research, Asia-Pacific at ING.

South Africa's rand slipped 0.7%, while its stocks .JTOPI hovered near a seven-week low as weaker gold prices weighed on sentiment.

Investors also monitored developments in the Iran war. US and Iranian negotiators are exploring a phased path out of war that could reopen the Strait of Hormuz and lift Washington's economic blockade of Iran, sources said.

MSCI's index tracking the region's stocks rose 0.1%, and looked set to end the week higher after two straight weeks of losses, as weekly gains in tech-heavy South Korean .KS11 and Taiwanese .TWII benchmarks offset weakness elsewhere.

"AI is the cornerstone that must not crack," said Ipek Ozkardeskaya, a senior analyst at Swissquote.

Ozkardeskaya added that any crack in the AI story could take away one of the market's strongest pillars and trigger a notable market pullback.

Equities in emerging Europe .MIME00000PUS rose 0.3%, with Romanian benchmark .BETI gaining the most, up 0.9%, while Hungary's .BUX rose 0.3%.

Turkish stocks .XU100 edged 0.5% higher, but hovered near six-month lows with lingering concerns over domestic financial stability. President Tayyip Erdogan said on Thursday that a recent crisis involving investment funds posed no risk to the country's financial system or broader economy.

Most currencies in the region strengthened against the euro, with the Hungarian forint advancing 0.6%. Hungary's central bank lowered its inflation target on Tuesday.

"A lower inflation target should be positive for the forint on the margin, although global factors are likely to be more important in the short term," said Bank of America Global Research market strategists in a note.

The Polish zloty edged 0.3% higher, though remaining at its weakest since early 2024.

Chinese and South Korean markets were closed for public holidays.

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