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EMERGING MARKETS-China growth worries weigh; Turkey lira at new record low

Sujata Rao
Monday, 6 Jan 2014 | 5:02 AM ET

LONDON, Jan 6 (Reuters) - Signs of a growth slowdown in China pushed emerging shares down almost 1 percent on Monday, while the Turkish lira, battered by messy politics, led losses among emerging market currencies.

The lira slumped to a new record low against the dollar as investors fretted about the central bank's reluctance to tighten monetary policy, but other emerging currencies also lost ground, with worries about China's slowdown pushing Asian currencies to multi-month lows.

Purchasing managers' surveys showed China's services sector activity dropped last month to its slowest since August 2011, mirroring weaker factory expansion and confirming a slowdown in the world's No.2 economy.

Mainland Chinese shares sank to five-month lows, hit by the weaker data and new guidelines aimed at regulating explosive shadow banking growth.

Worries about China also hit Asian markets, with the Korean won seeing its biggest one-day loss in 6-1/2 months while the Taiwan dollar hit six-month lows.

"There is enough evidence that China is avoiding a hard landing but investors are not seeing evidence of structural improvements," said Manik Narain, a strategist at UBS.

"Emerging markets have become increasingly reliant on Chinese demand, and if the United States is having an inward-looking recovery, EM does need China to bridge that gap."

The weakness in China pushed broader emerging equities to four-month lows while emerging European stocks fell 1.5 percent.

The Turkish lira fell 0.6 percent while benchmark bond yields rose to nearly a one-year high above 10 percent . Analysts said heavy foreign positioning in Turkish bonds was a danger for the lira if currency losses induce investors to sell their debt holdings.

Luis Costa, head of CEEMEA debt and FX strategy at Citi, said foreigners had sold $1.5 billion worth of Turkish government bonds in December, according to central bank data.

"Difficult to call the top on dollar/lira here, given the poor political background. I don't think foreigners will hit the panic button yet, but we continue to highlight a disconnect between lira sentiment and positioning," Costa said in a note.

"The price action on the lira side will support further pressure on bond yields."

Moscow stocks, opening after new year holidays, were down 2.9 percent, catching up with equity losses in other emerging markets. Most of Russia markets remains shut until Thursday.

(For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

(Editing by Jeremy Gaunt)