* Hong Kong shares record best day in 10 months
* EM currencies set for best day in near 11-weeks as dollar dips
* Turkish lira, S.Africa rand jump over 1% (Adds confirmation of Hong Kong news, MSCI EM FX index, Updates prices and milestones)
By Medha Singh and Agamoni Ghosh
Sept 4 (Reuters) - Hong Kong stocks led a rally in emerging market shares on Wednesday after reports that the government may withdraw a controversial extradition bill, and developing world currencies were on pace for their best daily gain in nearly 11 weeks.
Shares on the Hang Seng index had closed nearly 4% higher on the reports, which were later confirmed by Hong Kong leader Carrie Lam.
The withdrawal of the bill, which would have allowed extraditions to mainland China, ushered in a sense of respite after months of unrest that has thrown the Chinese-administred city into its worst crisis in decades.
“It remains to be seen whether it will be enough to reverse the poison and mistrust between the people of Hong Kong and its executive, but it is at least a start,” said Michael Hewson, Chief Market Analyst at CMC Markets.
MSCI’s index for emerging market stocks scaled a fresh three-week high.
Further boosting sentiment was upbeat data from China reflecting the services sector’s fastest expansion rate in three months in August, easing some concerns of a slowdown in the world’s second largest economy.
Asian markets took heart from the positive data, with mainland Chinese shares closing at near five-week highs.
A similarly upbeat service sector report for August in Russia helped the country’s stocks move higher, while a rise in oil prices pushed the crude exporter’s currency higher.
Mumbai-listed stocks underperformed the broader market, after data showed that India’s dominant services industry expanded at a slower pace in August.
Developing world currencies broadly rose with the EM currencies index enjoying it’s best day in nearly 11 weeks after weak U.S. manufacturing readings dented the dollar.
China’s yuan also racked up its biggest one-day gain in nearly 11 weeks.
Turkey’s lira jumped 1%, continuing to take comfort from inflation figures released on Tuesday that are likely to pave the way for lower interest rates before year-end.
South Africa’s rand jumped 1.5%, building on previous session’s gains on better-than-expected second-quarter economic growth and shrugging off the latest data which showed private sector activity contracted in August.
In emerging Europe, the Hungarian forint rose 0.4% against the euro to outperform its regional peers after data showed retail sales rose by an annual 6.4% in July after a revised 5.4% increase in June.
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For RUSSIAN market report, see (Reporting by Medha Singh and Agamoni Ghosh in Bengaluru Editing by Gareth Jones and Alexandra Hudson)