EMERGING MARKETS-Stocks head for biggest weekly loss in a year
LONDON, June 21 (Reuters) - Emerging markets lost more ground on Friday, with stocks set for their biggest weekly loss in just over a year and central banks from Korea to Russia wading in to stem currency falls against a resurgent dollar.
The MSCI index for emerging market stocks fell a further 0.5 percent after the previous session's 4 percent drop, the biggest daily loss since September 2011 as the U.S. Federal Reserve outlined plans to wind down its $85 billion-a-month asset-buying programme and Chinese data confirmed a sharp slowdown in the world's second biggest economy.
The index has fallen more than 5 percent this week and year-to-date losses now amount to around 15 percent but faces more challenges as U.S. Treasury yields stay just off two-year highs.
Chinese stocks fell 0.5 percent to levels last seen in December 2012 as a money market squeeze that has taken overnight rates to multi-year highs abated only slightly on Friday. Authorities have steered clear of supplying much cash to banks, indicating they have no plans to loosen policy.
"Markets are reacting not so much to Fed tapering as to China tapering," said Lars Christensen, chief emerging markets analyst at Danske Bank in Copenhagen.
"What we are seeing in China is a combination of tight monetary policy and weak numbers."
"As it looks now it looks as if it will get worse for emerging markets before it gets better," he added.
Many big Asian bourses such as Seoul and Jakarta lost more than 1 percent. Some others such as South Africa and Russia did not add to the previous session's heavy losses but stayed close to multi-month lows .
Action on currency markets was dominated by central banks which have stepped in to smooth the wild swings against the dollar. While the greenback is on track for its best weekly rise in a year, emerging currencies are plumbing multi-year lows, hit by the exodus from stock and bond markets.
The rupee approached new record lows of around 60 per dollar with the Reserve Bank of India expected to intervene again. Asian currencies including the won, ringgit and Philippine peso headed for their biggest weekly losses in years and many central banks were spotted in the markets.
In emerging Europe Turkey opened a dollar-selling auction, helping lift the lira off record lows while Russia has also been intervening as the rouble has closed in on the boundary of its dollar-euro basket.
"Central banks are taking this seriously and will continue to intervene as reserve levels are high," said Sebastian Barbe, head of emerging currency research at Credit Agricole in Paris.
"They want to avoid a situation where investors expect currencies to slide further and increase outflows. In some countries such as Brazil and India they want to avoid imported inflation," he added.
Outflows have already been severe, with EPFR Global data showing $2.7 billion have fled emerging debt funds in the past week, and $7 billion has leaked out since May 23. Emerging equity funds lost $3.5 billion in the past week, EPFR said.
On emerging bonds, yields on sovereign dollar debt were stable after a 30 bps widening on Thursday, while domestic currency debt yields are at their highest since Jan. 2012 on JP Morgan's benchmark indexes.
Turkish benchmark yields rose further to fresh 11-month highs, having risen more than 1 percentage point this week but South African bonds stabilised after their biggest daily sell-off in 10 years.
Debt insurance costs stabilised after spiking to multi-year highs on Thursday but five-year credit default swaps for the State Bank of India, used by investors as an proxy indicator for sovereign risk, rose 18 bps to nine-month highs as rupee weakness triggered a warning from Moody's.