EMERGING MARKETS- Stocks rebound as oil falls on Middle East hopes

By Sudeshna Ghoshal and Ragini Mathur

Nov 9 (Reuters) - Emerging-market equities clawed back some of last week's losses on Monday, as a drop in oil prices and tentative hopes of de-escalation in the Middle East supported risk appetite.

US President Donald Trump said on Sunday he was highly unlikely to order fresh attacks on Iran as long as talks to end the conflict continued to make progress, even as both countries reported shipping incidents in or near the Strait of Hormuz.

Trump's comments eased fears of a broader disruption to energy supplies, sending Brent crude down 0.9% and supporting assets in energy-importing developing economies.

MSCI's emerging-market equity index .MSCIEF rose 1.4%, rebounding after sliding to a seven-month low in Friday's session.

The advance was led by heavyweight Taiwanese shares .TWII, which jumped 4.9% after the country activated its stock stabilisation fund in response to last week's AI-driven selloff.

Markets swung sharply last week as investors weighed the implications of Democratic gains in the US midterm elections, including a more challenging political backdrop for the expansion of AI data centres.

In South Korea, stocks .KS11 closed at their lowest level in nine months after a choppy session.

MSCI's emerging-market currency index .MILA00000CUS was little changed. The dollar fell 0.3% against a basket of currencies after posting its biggest one-day gain in nearly five months on Friday, when stronger-than-expected US jobs data reinforced Federal Reserve rate hike expectations.

J.P. Morgan downgraded emerging-market currencies to "market weight" from "overweight," citing uncertainty around global monetary policy and the outlook for artificial intelligence following the US midterm elections.

In central Europe, Poland's zloty was little changed against the euro, while Warsaw stocks .WIG gained 1%. S&P Global on Friday cut Poland's long- and short-term local-currency sovereign ratings to "A-/A-2" from "A/A-1," citing elevated budget deficits and rising government debt that could constrain policy flexibility in future shocks.

The move came less than two months after Moody's also downgraded Poland's sovereign rating.

Prague stocks .PX rose 0.2%, while the Czech crown was nearly flat after data showed the unemployment rate held at 5.0% in October, above the 4.9% forecast in a Reuters poll.

Poland and the Czech Republic both announced policy decisions last week as their central banks sought to contain inflationary pressures amid higher energy costs and persistent wage growth.

"EM central banks are turning the corner, shifting from a dovish/neutral to a hawkish/neutral stance. We caution that the longer expensive energy inputs persist, the higher the risk of second-round CPI effects—an outcome policymakers must avoid at all costs," Citi analysts said in a note.

"CE3 central banks, particularly reflationary Poland and wage-pressured Czech Republic, face increasingly tense policy positions," they added.

Elsewhere, South Africa's rand strengthened 0.4%.

Investors were assessing municipal-election results, in which the African National Congress suffered a significant setback, weakening its hand in negotiations to form coalition-led city governments.

In Israel, the shekel strengthened 0.5%, while stocks .TA125 were subdued. President Isaac Herzog on Saturday gave former military chief Gadi Eisenkot the first opportunity to form a government after the October 27 election left both Eisenkot and Prime Minister Benjamin Netanyahu short of a parliamentary majority.

Eisenkot said on Sunday he would seek to quickly build a broad governing coalition, though his path to power remained uncertain.

HIGHLIGHTS:

** Citi bullish on Indian equities, sees Nifty at 28,000 by end-2027

** China extends suspensions of 24% tariff on US goods, port fees on US ships for two months

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