EMERGING MARKETS-Ukraine debt soars on Russia deal, Turkey stocks plunge
LONDON, Dec 18 (Reuters) - Ukraine's dollar debt soared on Wednesday, a day after the country agreed a bailout from Russia, while Turkish stocks fell more than two percent to their lowest level in more than three months following a corruption probe.
Russia said on Tuesday it would buy $15 billion in Ukrainian bonds under a deal that keeps Kiev firmly in Moscow's orbit and out of the European Union's grasp, but sowed doubts in some Ukrainians' minds about what President Viktor Yanukovich might have agreed to in secret.
"Near-term, Ukraine bonds are likely to trade very strong," said analysts at Bank of America Merrill Lynch in a client note.
Investors had been worried about Ukraine's ability to repay dollar debts due next year, given its dwindling central bank reserves.
Ukraine's 2014 bond was up 3.6 points from Tuesday's close to rise above par for the first time since June, according to Tradeweb.
Ukraine's state energy firm Naftogaz' 2014 bond rose nearly 5 points to 99.5, its highest since August, according to Reuters data.
The hryvnia currency briefly rose a quarter percent against the dollar to 8.27 before trimming gains.
Ukraine's five-year credit default swaps dropped 16 basis points on Wednesday to 781 basis points, their lowest since July, according to Markit, after sliding 250 basis points on Tuesday.
The MSCI emerging equities index edged up ahead of a policy decision by the U.S. Federal Reserve, with a minority of economists expecting the Fed to announce a reduction in the monetary stimulus which has fuelled demand for risky assets.
Emerging markets have been relatively calm in the run-up to the meeting, and analysts say tapering expectations are largely priced in.
Turkish stocks dropped 2.5 percent to their lowest level since early September and the lira fell 0.4 percent, depressed by a corruption probe which has heightened political tensions ahead of elections next year.
Police detained sons of three ministers along with some prominent businessmen on Tuesday, state officials said, in what was widely seen as a challenge to Prime Minister Tayyip Erdogan's AK Party by a powerful Islamic cleric.
Turkish stocks have slumped nearly 8 percent in the past two days on news of the probe, with Halkbank plunging 15 percent in two days after police searched its headquarters in Ankara as part of their investigations.
The Turkish lira was also weaker after the central bank kept rates unchanged on Tuesday.
"There has been some market disappointment at this rate decision, there is a perception that the market needs higher interest rates to support the lira during periods of risk aversion," said Cristian Maggio, emerging markets strategist at TD Securities.
The Czech crown edged lower after Tuesday's no-change central bank rate decision, while the forint was steady after Hungary's central bank cut rates by 20 bps to 3 percent on Tuesday.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )