LONDON, June 1 (Reuters) - Emerging stocks gained on Thursday after three days of losses, helped by robust factory activity data in emerging Europe, while the Chinese yuan rose to seven-month highs as the central bank waged war on depreciation expectations.
MSCI's benchmark emerging equities index rose 0.2 percent after Hungary, Turkey and Russia delivered strong manufacturing activity numbers, adding to a recent run of encouraging data across emerging and developed markets.
Investors have been piling into emerging market assets on the back of this improvement, attracting an estimated $20.5 billion in May from foreign investors, the Institute of International Finance said.
"In emerging markets there are a lot of things that are positive," said Kiran Kowshik, an emerging markets FX strategist at UniCredit. "In addition to the growth, the market is pretty relaxed on (U.S. Federal Reserve) policy right now – it seems like the Fed is not going to rock the boat."
Budapest stocks gained 0.8 percent after Hungary's Purchasing Mangers' Index (PMI) jumped to its highest ever level of 62.1 in May. The Hungarian forint also firmed 0.2 percent against the euro, outperforming its Eastern European peers.
Asian numbers were weaker, however, with China's Caixin/Markit Purchasing Managers' Index (PMI) unexpectedly contracting in May for the first time in nearly a year.
China's mainland stock markets traded sideways but the yuan powered to seven-month highs, crossing the 6.8 per dollar level for the first time since Nov. 11.
The move came after China's central bank pushed the reference rate for the yuan up by 0.8 percent, the midpoint's second largest one-day appreciation since the currency was de-pegged from the dollar in 2005.
Kowshik said China had been persistently fixing the yuan stronger for the last four to six weeks: "They're sending a very strong signal that they want the yuan to be stronger. Over the past year, EM has done quite well but the renminbi has lagged behind – now you are seeing a catch up."
Other Asian markets delivered mixed data, with South Korean factory activity contracting for a 10th straight month , although exports grew at a double digit pace. Indian factory growth slowed to a three-month low. Both countries' stock markets traded flat.
The South African rand gained 0.6 percent against the dollar after slipping earlier in the week when market expectations that President Jacob Zuma would suddenly be taken out of office were disappointed.
Fitch and S&P Global Ratings, which both cut South Africa's sovereign rating from BBB- to BB+ in early April, are expected to make follow-up rating decisions this week.
"It's possible that S&P downgrades the local currency rating to sub-investment grade," said Kowshik. "But South Africa's external balances have improved quite significantly since last year, and that's been very important for the currency in the past."
The Russian rouble edged up 0.1 percent supported by a gain of over 1 percent in oil prices, but the Turkish lira slipped 0.2 percent in the face of a stronger dollar .
Overnight, Brazil's central bank slashed interest rates by 100 basis points to 10.25 percent, a more than three-year low, but the move was widely expected as inflation is falling. The real was steady in early trade near a two-week high. For GRAPHIC on emerging market FX performance 2017, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see tmsnrt.rs/2dZbdP5
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For RUSSIAN market report, see)
Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1007.30 +1.97 +0.20 +16.82
Czech Rep 1002.50 +0.12 +0.01 +8.78
Poland 2273.12 -8.06 -0.35 +16.69
Hungary 34760.26 +208.36 +0.60 +8.62
Romania 8769.41 +80.91 +0.93 +23.77
Greece 777.81 +2.57 +0.33 +20.85
Russia 1042.50 -10.80 -1.03 -9.53
South Africa 46781.16 -372.75 -0.79 +6.56
Turkey 97189.88 -351.70 -0.36 +24.38
China 3101.70 -15.48 -0.50 -0.06
India 31160.58 +14.78 +0.05 +17.03
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.39 26.34 -0.18 +2.35
Poland 4.18 4.18 -0.08 +5.32
Hungary 307.49 307.90 +0.13 +0.43
Romania 4.56 4.56 -0.02 -0.64
Serbia 122.26 122.30 +0.03 +0.89
Russia 56.55 56.60 +0.09 +8.33
Kazakhstan 312.41 311.73 -0.22 +6.80
Ukraine 26.26 26.31 +0.18 +2.82
South Africa 13.04 13.10 +0.47 +5.30
Kenya 103.20 103.30 +0.10 -0.80
Israel 3.55 3.54 -0.28 +8.60
Turkey 3.53 3.52 -0.29 -0.21
China 6.80 6.81 +0.08 +2.04
India 64.48 64.51 +0.04 +5.37
Brazil 3.23 3.23 +0.00 +0.84
Mexico 18.59 18.62 +0.13 +11.40
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 321 0 .02 7 87.08 1
Editing by Stephen Powell