LONDON, May 31 (Reuters) - Emerging market equities were set to end May with a fifth straight month of gains on Wednesday while most currencies advanced against the dollar, supported also by new data showing brisk Chinese factory activity.
MSCI's emerging equity index softened slightly on the day, but is up around 3.4 percent in May, having added 17 percent so far this year.
Currencies were mixed on the day but also painted an upbeat picture in May, with Mexico's peso, South Africa's rand , Russia's rouble and the Turkish lira all on track to end the month stronger against the dollar. The greenback racked up its fourth straight month of gains.
Emerging markets have found support from the dollar rally running dry as most investors no longer believe U.S. President Donald Trump will be able to deliver on ambitious plans for tax cuts and infrastructure spending.
"U.S. inflation has been slowing, the whole Trumpflation trade has been completely taken out...and the market is judging that you will not get much done on reforms in the U.S., on health or tax or infrastructure," said Kaan Nazli, senior economist emerging markets debt at Neuberger Berman.
"That is supporting emerging markets in a sense that their central banks are still supportive rather than having to face too much tightening from the U.S. Federal Reserve and trade wars or such."
Nonetheless, emerging markets were still vulnerable to a slide in oil in the medium term, said Nazli.
Crude prices fell more than 1 percent on Wednesday on oversupply worries. Both oil CLc1> and copper prices headed for a third straight month of losses.
However, investors welcomed the latest data from China, taking it as a sign that world's second-biggest economy is not losing too much steam after a solid first quarter.
Activity in China's manufacturing sector grew at 51.2 in May - the same pace as in April - thanks to robust construction and infrastructure investment.
"Looking ahead, however, we suspect that the current stability of growth will prove temporary," Capital Economics wrote in a note to clients.
"With the regulatory crackdown on financial risks still weighing on credit growth, it will be difficult to avoid a further slowdown in the coming months."
Meanwhile, China's yuan surged to the strongest level in more than six months, with the central bank now seen less inclined to allow marked currency depreciation.
China is also changing how it calculates the yuan's guidance rate for the second time this year as it steps up efforts to stabilise the currency and reduce price swings.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1009.51 -2.26 -0.22 +17.08
Czech Rep 1003.26 -2.89 -0.29 +8.86
Poland 2285.45 -6.82 -0.30 +17.33
Hungary 34246.76 -74.38 -0.22 +7.01
Romania 8678.51 -9.99 -0.11 +22.49
Greece 769.98 -6.04 -0.78 +19.63
Russia 1063.02 -11.79 -1.10 -7.75
South Africa 47264.41 -434.94 -0.91 +7.66
Turkey 98134.70 +787.08 +0.81 +25.59
China 3117.48 +7.42 +0.24 +0.45
India 31230.86 +71.46 +0.23 +17.29
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.43 26.46 +0.12 +2.18
Poland 4.17 4.18 +0.11 +5.59
Hungary 307.47 307.55 +0.03 +0.44
Romania 4.57 4.57 +0.00 -0.77
Serbia 122.44 122.51 +0.06 +0.74
Russia 56.70 56.56 -0.25 +8.05
Kazakhstan 312.18 311.88 -0.10 +6.88
Ukraine 26.28 26.28 +0.00 +2.74
South Africa 13.09 13.12 +0.20 +4.88
Kenya 103.20 103.31 +0.11 -0.80
Israel 3.54 3.54 -0.06 +8.62
Turkey 3.54 3.55 +0.26 -0.32
China 6.82 6.85 +0.52 +1.85
India 64.51 64.62 +0.17 +5.32
Brazil 3.26 3.26 +0.01 -0.12
Mexico 18.65 18.71 +0.30 +11.07
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 322 3 .02 7 86.73 1
All data taken from Reuters at 09:17 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Reporting by Karin Strohecker; Editing by Keith Weir)