LONDON, Sept 28 Emerging equities rose on Friday and were on track for their biggest monthly gain since January while South African assets firmed modestly on after being knocked lower by a one-notch credit ratings downgrade in the previous session.
Markets everywhere have been buoyed by expectations that Spain's tough budget is a prelude to an EU programme that will allow the European Central Bank to buy its bonds.
Chinese shares gained more than 1 percent as hopes for stimulus gathered pace while MSCI's emerging equity index jumped 0.7 percent. The index is up more than 6 percent in September, the biggest monthly gain since January.
The market is up 7.2 percent on the quarter, recouping most of the last quarter's 10 percent losses, thanks to the ECB's pledges on the euro and the U.S. Federal Reserve's decision to embark on open-ended $40 billion a month asset buying.
South Africa's equity index rose 0.3 percent shrugging off the Moody's action which was mostly priced in after two other agencies cut the rating earlier this year.
Credit default swaps eased slightly to 151 basis points.
The rand and bonds which weakened after the downgrade, recovered slightly, with the latter benefiting from their debut into Citi's prestigious World Government Bond Index.
South African bonds have taken in over $7 billion in foreign flows since mid-April when their eligibility for the index was announced and analysts reckon the market will be supported in coming weeks by flows from funds that track the WGBI.
"WGBI entry and Moody's downgrade news both vie for market flows and sentiment," Barclays said in a note.
It added separately: "We are concerned about the ...response once excitement about WGBI inclusion wanes and market participants assume related inflows have entered the market."
In Europe, Russian stocks rose 1 percent as oil rose though Warsaw and Budapest were flat. MSCI's emerging Europe index is up 8 percent this quarter
The Czech crown fell 0.5 percent to new six-week lows a day after the central bank cut rates to a record low and signalled it would weaken the currency [ID:ID:nL5E8KQ95C].
"Yesterday's meeting should remove any doubt that the central bank will do anything it can to prevent a strengthening of the crown," ING analyst Simon Quijano-Evans said.
Poland's zloty rose 0.3 percent to a two-week high to the euro but Hungary's forint gave up early gains fuelled by stronger-than-expected data. [ID:ID:nB3E8CB053]
In Asia, the Chinese yuan rose to its strongest level since the landmark currency de-pegging of July 2005. The Indian rupee firmed 0.6 percent to rise into positive territory for 2012.
Emerging sovereign dollar bonds saw spreads tighten 8 bps to 301 bps over Treasuries. Spreads have contracted more than 70 bps this past quarter thanks to strong inflows.
(Reporting by Sujata Rao)