December 12, 2016 / 9:49 AM / 7 months ago

EMERGING MARKETS-Rising US yields weigh on EM, Turkey tumbles on GDP data

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LONDON, Dec 12 (Reuters) - The lira fell more than 1 percent on Monday, hit by data showing Turkey's economy shrinking for the first time since 2009, while emerging markets overall felt the heat from U.S bond yields hitting two-year highs.

With the U.S. Federal Reserve widely expected to raise interest rates this week and signal a tightening path for 2017, a selloff in U.S. Treasuries has caused a sharp steepening in the yield curve - a negative signal for emerging assets.

Adding to that is concern about China, which has posted stronger-than-expected inflation data and witnessed a regulatory crackdown on segments of its equity market. Finally, the European Central Bank last week committed to extend bond purchases albeit in smaller volumes.

MSCI's emerging equity index fell 0.6 percent, led by 1.5 percent losses in Hong Kong. Chinese mainland equities posted the biggest one-day fall in six months after regulators slapped curbs on insurers' stock investments while yuan bond yields hit a more than one-year high.

In Turkey the lira tumbled almost 2 percent before recovering to trade around 1 percent lower as data showed the economy shrank 1.8 percent in the third quarter while the current account deficit was wider than expected.

ING analysts predicted the lira would test the 3.6-per-dollar level this week after the data and twin bomb attacks in Istanbul on Saturday. More than 100 people have been detained after the bombings, which killed 44 people .

"With ...the domestic political uncertainty, market participants being unimpressed with new measures proposed by government last week and a very high bar for central bank rate hikes, the lira is set to struggle," the bank told clients.

Istanbul stocks fell almost 1 percent and dollar bond prices fell between 1.0-2.5 cents while Turkey's average sovereign yield spread over Treasuries widened 10 basis points .

Most other emerging currencies also weakened against the dollar, which rose within sight of recent 13-1/2 year highs . The South African rand fell 0.6 percent.

The outlier was Russia which benefited from oil's rise to 18-month highs after an OPEC deal to reduce output. The rouble jumped 2 percent against the dollar to 14-month highs around 61.04 per dollar while Russian stocks surged to record highs after rising for five straight weeks.

Local 10-year yields touched one-month lows.

Analysts predicted the Russian central bank would leave interest rates steady on Friday but could deliver a dovish statement due to the stronger oil price outlook.

"With Brent oil likely to average between $55 and $60 per barrel through the first half of 2017, the rouble (now 61.69 per dollar) will head to 61.28 this week, and potentially 60.43," SEB analysts wrote.

For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 873.09 -4.76 -0.54 +9.94

Czech Rep 902.81 +2.10 +0.23 -5.60

Poland 1888.98 -10.78 -0.57 +1.60

Hungary 30492.12 -96.26 -0.31 +27.47

Romania 6939.14 +44.16 +0.64 -0.93

Greece 641.38 +1.29 +0.20 +1.59

Russia 1143.52 +33.38 +3.01 +51.05

South Africa 44481.24 +261.00 +0.59 -2.87

Turkey 74976.62 -750.66 -0.99 +4.53

China 3152.47 -80.41 -2.49 -10.93

India 26524.62 -222.56 -0.83 +1.56

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.03 27.02 -0.03 -0.10

Poland 4.46 4.45 -0.20 -4.44

Hungary 314.30 314.59 +0.09 +0.11

Romania 4.50 4.50 -0.12 +0.32

Serbia 123.45 123.26 -0.15 -1.60

Russia 61.02 62.47 +2.36 +19.54

Kazakhstan 330.60 334.30 +1.12 +2.99

Ukraine 26.15 26.00 -0.57 -8.41

South Africa 13.86 13.81 -0.34 +11.54

Kenya 101.90 102.10 +0.20 +0.29

Israel 3.83 3.83 -0.04 +1.57

Turkey 3.52 3.49 -1.06 -17.22

China 6.91 6.90 -0.14 -6.10

India 67.54 67.46 -0.12 -1.99

Brazil 3.38 3.38 -0.00 +17.24

Mexico 20.28 20.38 +0.53 -15.32

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 367 -2 .11 7 32.61 1

All data taken from Reuters at 09:20 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (editing by John Stonestreet)

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