By Carolyn Cohn
LONDON, May 26 (Reuters) - Emerging stocks rose more than 1 percent on Thursday, extending a recovery on the back of higher commodity prices and on news that China has shown interest in buying European bailout bonds for Portugal.
Turkish assets rallied after the central bank confounded expectations on Wednesday by not raising bank reserve requirements again.
The Financial Times quoted the head of the European Financial Stability Facility (EFSF) on Thursday as saying China and other Asian investors were expected to buy a 'strong proportion' of European bailout bonds for Portugal when the euro zone's rescue fund starts auctioning them next month.
'The emerging maket world is on auto pilot -- what's happening in emerging markets is being driven by global sentiment,' said Josef Karasin, head of emerging markets research at IDEA Global.
'China using its vast reserves to buy European bonds should be seen in the context of diversification, but it's not a solution to the crisis and won't have a long-term impact on the Europe.'
The MSCI emerging equities index rose 1.15 percent, extending a bounce from recent two-month lows to nearly 4 percent. The Thomson Reuters emerging Europe index rose 0.4 percent to a 6-day high.
Volatile commodity prices and uncertainty about the global economic outlook had weighed on emerging markets recently, along with renewed concerns about the euro zone debt crisis which reduced appetite for riskier assets globally.
Emerging sovereign debt spreads tightened by 5 basis points to 279 bps over U.S. Treasuries.
The lira edged up and Turkish stocks rose 1 percent after the central bank on Wednesday left bank reserve requirement ratios (RRRs) unchanged despite strong loan growth, confounding market expectations it would raise requirements gain.
The central bank held its policy rate at 6.25 percent as expected and said its unorthodox policies, focused on lower interest rates to deter hot money inflows and higher RRRs to ensure an overall tightening effect, were starting to take effect.
'Most market participants had assumed that any aggressive move to tighten policy will have to await the conclusion of parliamentary elections on June 12, so it's not a huge surprise that the MPC (Monetary Policy Committee) stayed pat,' said Tim Ash, head of CEEMEA research at RBS, in a client note.
Other emerging currencies also rose from recent lows, with the South African rand up 0.6 percent.
The Serbian dinar hit the day's high against the euro after Serbia said it had arrested war crimes suspect Ratko Mladic.
'It may show that the Serbian government is more willing to comply with international laws and be more ready to start EU entry. This should help in the process,' said Elisabeth Gruie, emerging markets strategist at BNP Paribas.
Traders said there was no trade in Serbian hard currency debt and credit default swaps.
(Additional reporting by Sujata Rao; Editing by Susan Fenton) (carolyn.cohn@reuters.com; Reuters Messaging carolyn.cohn.reuters.com@reuters.net; +44 207 542 6320) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, May 26 (Reuters) - Emerging stocks rose more than 1 percent on Thursday, extending a recovery on the back of higher commodity prices and on news that China has shown interest in buying European bailout bonds for Portugal.
Turkish assets rallied after the central bank confounded expectations on Wednesday by not raising bank reserve requirements again.
The Financial Times quoted the head of the European Financial Stability Facility (EFSF) on Thursday as saying China and other Asian investors were expected to buy a 'strong proportion' of European bailout bonds for Portugal when the euro zone's rescue fund starts auctioning them next month.
'The emerging maket world is on auto pilot -- what's happening in emerging markets is being driven by global sentiment,' said Josef Karasin, head of emerging markets research at IDEA Global.
'China using its vast reserves to buy European bonds should be seen in the context of diversification, but it's not a solution to the crisis and won't have a long-term impact on the Europe.'
The MSCI emerging equities index rose 1.15 percent, extending a bounce from recent two-month lows to nearly 4 percent. The Thomson Reuters emerging Europe index rose 0.4 percent to a 6-day high.
Volatile commodity prices and uncertainty about the global economic outlook had weighed on emerging markets recently, along with renewed concerns about the euro zone debt crisis which reduced appetite for riskier assets globally.
Emerging sovereign debt spreads tightened by 5 basis points to 279 bps over U.S. Treasuries.
The lira edged up and Turkish stocks rose 1 percent after the central bank on Wednesday left bank reserve requirement ratios (RRRs) unchanged despite strong loan growth, confounding market expectations it would raise requirements gain.
The central bank held its policy rate at 6.25 percent as expected and said its unorthodox policies, focused on lower interest rates to deter hot money inflows and higher RRRs to ensure an overall tightening effect, were starting to take effect.
'Most market participants had assumed that any aggressive move to tighten policy will have to await the conclusion of parliamentary elections on June 12, so it's not a huge surprise that the MPC (Monetary Policy Committee) stayed pat,' said Tim Ash, head of CEEMEA research at RBS, in a client note.
Other emerging currencies also rose from recent lows, with the South African rand up 0.6 percent.
The Serbian dinar hit the day's high against the euro after Serbia said it had arrested war crimes suspect Ratko Mladic.
'It may show that the Serbian government is more willing to comply with international laws and be more ready to start EU entry. This should help in the process,' said Elisabeth Gruie, emerging markets strategist at BNP Paribas.
Traders said there was no trade in Serbian hard currency debt and credit default swaps.
(Additional reporting by Sujata Rao; Editing by Susan Fenton) (carolyn.cohn@reuters.com; Reuters Messaging carolyn.cohn.reuters.com@reuters.net; +44 207 542 6320) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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