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EMERGING MARKETS-Emerging markets sideways pre-Fed; offshore RMB borrowing rates rise
December 14, 2016 / 10:30 AM / 8 months ago

EMERGING MARKETS-Emerging markets sideways pre-Fed; offshore RMB borrowing rates rise

LONDON, Dec 14 (Reuters) - Emerging markets moved sideways on Wednesday, waiting to hear the message from the U.S. Fed meeting later in the day, while Hong Kong overnight yuan rates hit one-week highs, reflecting tighter liquidity conditions.

Investors have broadly retreated to the sidelines before the 1900 GMT U.S. Federal Reserve decision. While the Fed will almost certainly raise rates by 25 basis points, the more important element will be the signal it sends on future policy.

"The question people are looking at is whether they are concerned about the dollar, and if they say the dollar appreciation presents medium-term risks we will have to wonder if one-to-two rate hikes next year make sense," said Peter Kinsella, head of emerging markets research at Commerzbank.

"The risk-reward of long dollar positions looks poor ... it's all baked into the cake," he added, referring to the greenback's recent run to 14-year highs.

MSCI's emerging equity index was flat while most currencies slipped. The Russian rouble rally also paused, pulling the currency off 14-month highs, while the rand slipped 0.3 percent after data showing headline inflation accelerating to 6.6 percent - above the target band.

In Asia, focus was on a renewed spike in overnight yuan borrowing rates in Hong Kong, which fixed at a one-week high amid Chinese measures to stabilise mainland yuan.

"Yuan offshore interest rates have sharply risen this morning as authorities absorb liquidity to stabilise the renminbi," Morgan Stanley analysts told clients.

Chinese central bankers signalled their readiness to defend the yuan but their assurances are seen as insufficient, given that in January Chinese citizens can take up their annual quota to each remit $50,000 overseas.

Commerzbank's Kinsella noted the widening spread between onshore and offshore yuan.

"It's a seasonal effect. Coming into January we will see fairly large capital outflows and if you look in the past two months, reserve drawdowns have been very significant ... so we could well come into January-February with reserves under $3 trillion," he said.

Chinese mainland stocks fell 0.8 percent while bourses in Russia eased from record highs and Turkish markets also slipped.

Eastern European stocks were the outliers, with Budapest rallying to new record highs and Warsaw hitting the highest since April , tracking Western European peers which are just off 11-month highs.

For GRAPHIC on emerging market FX performance 2016, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2016, see tmsnrt.rs/2dZbdP5

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 875.57 -1.63 -0.19 +10.25

Czech Rep 913.54 +2.45 +0.27 -4.47

Poland 1924.78 +5.29 +0.28 +3.53

Hungary 31283.50 +345.37 +1.12 +30.78

Romania 7017.73 +32.67 +0.47 +0.19

Greece 627.78 -11.93 -1.86 -0.57

Russia 1151.45 -12.70 -1.09 +52.10

South Africa 44197.98 +27.32 +0.06 -3.49

Turkey 76744.86 -250.41 -0.33 +7.00

China 3140.80 -14.24 -0.45 -11.26

India 26615.98 -81.84 -0.31 +1.91

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.01 27.01 +0.00 -0.05

Poland 4.44 4.42 -0.38 -4.06

Hungary 314.46 314.03 -0.14 +0.06

Romania 4.51 4.50 -0.19 +0.21

Serbia 123.35 123.40 +0.04 -1.52

Russia 60.81 60.63 -0.30 +19.96

Kazakhstan 332.05 331.17 -0.27 +2.54

Ukraine 26.30 26.12 -0.68 -8.93

South Africa 13.67 13.61 -0.42 +13.13

Kenya 102.00 102.00 +0.00 +0.20

Israel 3.80 3.80 +0.02 +2.28

Turkey 3.48 3.49 +0.11 -16.30

China 6.90 6.90 -0.01 -5.90

India 67.54 67.40 -0.20 -1.98

Brazil 3.33 3.33 -0.00 +18.74

Mexico 20.26 20.28 +0.06 -15.26

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 371 3 .06 7 34.25 1

All data taken from Reuters at 10:13 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Editing by Robin Pomeroy)

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