October 5, 2018 / 10:12 AM / 11 days ago

EMERGING MARKETS-Emerging stocks head for worst week since Feb, Indian rupee drops on RBI surprise

(Adds India’s interest rate decision, updates prices)

By Sruthi Shankar and Aaron Saldanha

Oct 5 (Reuters) - Emerging market stocks were headed on Friday for their worst weekly losses since early February, while a rise in U.S. Treasury yields to seven-year highs kept a lid on emerging market currencies before U.S. jobs data are released.

Signs that the U.S. economy is forging ahead even as developing countries struggle with local currency crises, trade disputes and political problems have encouraged investors to dump emerging market assets this year.

The 10-year U.S. Treasury yield held near a seven-year high as markets braced for a report on Friday that is expected to show another solid month for U.S. non-farm payrolls in September.

U.S. Federal Reserve chair Jerome Powell said on Wednesday that interest rates would continue rising for some time and may have to move past their “neutral” level.

“If the U.S. data comes in stronger, markets would speculate (about) more and faster rate hikes, especially after Powell’s speech this week,” said Per Hammarlund, chief EM strategist at SEB. “That could weigh on EM if it comes in higher.”

India’s rupee sank after the central bank kept interest rates unchanged, surprising most analysts who had expected policy makers to hike to combat inflationary pressure from rising oil prices and a weakening rupee.

The rupee fell about 0.7 percent in the minutes after the decision, hitting an all-time low of 74.125 per dollar.

“The unchanged decision suggests that the RBI is not overly concerned about rupee depreciation,” Mitul Kotecha, a senior emerging markets strategist with TD Securities, wrote in a note, adding the currency could stay above the 74 to the dollar level.

To fight rising fuel costs, the Indian government on Thursday cut prices of gasoline and diesel, sending shares of energy companies like Reliance Industries tumbling.

The MSCI index for emerging stocks fell by 0.73 percent, putting it on track for a 4 percent weekly loss, its worst since early February.

Stocks in Hong Kong, Russia and Turkey all declined and were on track to post weekly losses.

“Despite the recent EM stabilization, we recommend resisting the instinct to ‘buy the dip’,” Barclays analysts wrote in a note. “We do not believe that the elements that warrant a more cautious approach towards EM have dissipated.”

South Africa’s Top 40 index fell over 1 percent, dragged down by losses for MTN Group after a Bloomberg report that Nigeria was seeking to charge 15 percent interest on an $8 billion claim against the telecoms group.

The South African rand firmed after President Cyril Ramaphosa said 275,000 more jobs a year would be created by plans to reduce sky-high unemployment and lift growth .

Russia’s rouble also recovered from losses stemming from accusations by Western countries of cyber attacks.

For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Sruthi Shankar and Aaron Saldanha in Bengaluru, editing by Larry King and Gareth Jones)

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