October 7, 2019 / 9:52 AM / 7 days ago

EMERGING MARKETS-U.S.-China trade angst, Turkish geopolitics hit EM assets

* Turkish lira hit by concerns over Syria operations

* China, Hong Kong closed for local holidays

* EM FX set to break 3-day winning streak

By Sruthi Shankar

Oct 7 (Reuters) - Worries over the outcome of the upcoming U.S.-China trade talks drove emerging market currencies lower on Monday, after three sessions of gains, with the lira declining the most on concerns about Turkey’s military operations in Syria.

The lira dropped about 0.9% to 5.744 per dollar after the White House said Turkey will soon be moving forward with its military operation into northern Syria against Kurdish-led forces, although U.S. armed forces will not support it or be involved.

“News that the U.S. will step aside for an imminent Turkish operation ... has been the catalyst,” said Simon Harvey, an FX market analyst at Monex Europe.

“This comes after the U.S. repelled such an act in January threatening to cripple the Turkish economy if they attempted to enter Syria when the U.S. armed forces pulled out.”

The lira had been resilient in the past month even as its developing world peers succumbed to selling pressure on fresh evidence of slowing global growth and worries over trade disputes.

“With forces ready to enter either today or tomorrow, the next 48 hours is key for the lira this week,” Harvey said.

Meanwhile, optimism over the latest round of trade talks faded after Bloomberg reported that Chinese officials are signalling they are increasingly reluctant to agree to a broad trade deal pursued by U.S. President Donald Trump. The two sides are scheduled to hold talks on Oct. 10-11.

With Chinese and Hong Kong markets closed for local holidays, impact on the Asia-heavy developing world stocks index was limited, although the yuan fell 0.3% in offshore trading.

Other emerging currencies also slid with Russian rouble falling 0.4%, however, Moscow-listed shares jumped 0.7%, boosted by gains in oil majors Gazprom, Rosneft and Lukoil.

Russia’s energy minister told Reuters his country should reform oil taxation to bring into production some 10 billion tonnes of currently uneconomic reserves and boost producers’ margins to compete better with rivals.

The South African rand dropped 0.8%, with data showing the country’s net foreign reserves fell to $44.058 billion in September from $44.226 billion in August.

The Polish zloty, the Hungarian forint and the Czech crown all fell against the euro, hit by weak industrial orders data from Germany, a key trading partner for east European economies.

A Polish central banker said lenders in the country will face costs of 20 billion to 30 billion zlotys ($5.1-$7.6 billion) due to the European Court of Justice’s (ECJ) ruling on Swiss-franc mortgages, according to a regional news agency.

Lenders have said the cost of the verdict could amount to 60 billion zlotys.

For GRAPHIC on emerging market FX performance 2019, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance 2019, 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 in Bengaluru; Editing by Aditya Soni)

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