LONDON, Dec 7 (Reuters) - The Turkish lira firmed 0.7 percent to one-week highs on Wednesday, lifted by authorities' steps to stem the currency's weakness while emerging stocks rose for the third straight day on the back of a stable dollar.
The lira which has hit successive record lows in recent days rose 2 percent on Tuesday and built on those gains after the defence ministry announced plans to convert almost $300 million in hard currency into lira while the energy regulator said future gas tenders would be held in the local currency .
"There seems to be a bit of turnaround since yesterday in the lira and one aspect is some of the measures such as selling foreign currencies," said William Jackson at Capital Economics.
"Some people have also interpreted the central bank's comments yesterday as relatively hawkish," he said, referring to governor Murat Cetinkaya's warnings that lira weakness risked knocking the bank off its inflation target.
Jackson expects the lira recovery to be short-lived however and predicts it to hit 3.75 per dollar by end-2017 from around 3.45 currently, as Turkey struggles with a current account deficit.
Analysts at Commerzbank agreed, noting it was unclear the central bank would step up commitment to inflation targeting.
They too forecast the lira at 3.75, adding this was "subject to significant upside risk unless the central bank can demonstrate the ability to ignore government remarks and keep the real interest rate significantly positive."
The dollar index surged to 14-year highs this month on expectations of more rate rises by the U.S. Federal Reserve and more spending by President-elect Donald Trump. But it has eased 1.5 percent off those levels, which alongside an oil price rally, has provided some relief to emerging assets.
Emerging stocks rose 0.5 percent while emerging sovereign dollar bond yield premia to Treasuries have compressed to 356 basis points, the lowest in three weeks.
Emerging equities benefited from stronger Wall Street closes on Tuesday, with indexes slightly off recent record highs. German stocks hit one-year highs on Wednesday.
Most also expect the European Central Bank to extend its bond buying programme, even though it is seen signalling that the stimulus will eventually end.
The global backdrop prompted the Reserve Bank of India to buck expectations for a 25 bps rate cut. Its decision to hold interest rates unchanged lifted the rupee 0.3 percent.
BNP Paribas had been among the few to predict an on-hold decision, noting the rupee's 2.5 percent fall last month.
"This stirs up concerns of imported inflation not yet reflected in most recent data, which shows CPI for October below RBI's 5.0 percent target for March 2017," the bank said.
The Polish zloty rose 0.7 percent to the euro before a central bank meeting that is seen holding rates at 1.5 percent despite slowing growth and investment.
In Asia, worries grew about Chinese capital outflows as data showed a bigger-than-expected fall in reserves to the lowest since 2011. Authorities are believed to have sold dollars last month to support the yuan, putting reserves at risk of falling under the key $3 trillion level.
Hong Kong-traded yuan slipped 0.2 percent to the dollar while onshore yuan was also fixed weaker.
For CENTRAL EUROPE market report, see
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For RUSSIAN market report, see ) (Additional reporting by Claire Milhench; Editing by Alexandra Hudson)