EMERGING MARKETS-Lira and forint weaken, Ukraine CDS hit 2-mth high
(Updates prices, adds Ukraine CDS, Hungary comment, Latam FX)
LONDON, Feb 10 (Reuters) - The lira fell half a percent against the dollar and the forint dropped 1 percent versus the euro on Monday on concern about monetary policy in Turkey and Hungary.
The backdrop for emerging assets was generally positive, however, after weak U.S. jobs data on Friday reduced expectations that the Federal Reserve might speed up the rate of tapering of its monetary stimulus.
The Ukrainian hryvnia continued to extend gains after last week's central bank decision to impose some capital curbs, but debt insurance costs hit two-month highs.
The lira fell 0.5 percent and Turkish stocks eased 0.9 percent after Standard and Poor's cut the outlook on Turkey's rating to negative from stable late on Friday, citing unpredictable policies and risks of economic shocks.
Ulrich Leuchtmann, a currency strategist at Commerzbank in Frankfurt, said the S&P move was hitting sentiment on the lira which has clawed back some January losses after big rate hikes at the end of last month.
"We had quite a good week for the lira last week and there is not much room for further recovery, as the central bank is not creating confidence that it has a monetary policy that makes the lira attractive. The rate hike only took place because the market forced it," Leuchtmann said.
Broader emerging currencies were steady to slightly softer, with the Brazilian real dropping 0.7 percent.
MSCI's emerging equity index edged down 0.1 percent. Chinese shares closed at their highest level in nearly six weeks.
The dollar was flat against major currencies and U.S. Treasury yields fell after Friday's jobs data.
Markets are likely to remain rangebound before this week's testimony in Congress by Janet Yellen, the new head of the Federal Reserve, widely known for her support of ultra-loose U.S. monetary policy.
The other weak link of the day was the Hungarian forint which is down 6 percent this year against the dollar and almost 5 percent to the euro as expectations have built of more interest rate cuts despite the fragile backdrop.
Citi analysts said Hungary could replace India in the BIITS grouping - its name for the so-called Fragile Five currencies of Brazil, India, Indonesia, Turkey and South Africa.
"Currencies originally believed to be good risk currencies are now fluctuating towards the BIITS group, despite their better macro headline figures," they said in a note.
"Hungary is case in point."
The day's outperformer was the hryvnia which rose as much as 1.5 percent to an 11-day high after the imposition of the capital curbs which slapped restrictions on some types of foreign currency purchases.
The move has stabilised the currency, raising it almost 5 percent from 4-1/2-year lows hit last Wednesday.
The central bank offered to buy dollars at 8.49 hryvnia per dollar, compared with 8.54 on Friday.
But five-year credit default swaps rose 38 basis points to 1,088 bps, their highest level in two months, according to Markit.
Leuchtmann said the currency would enjoy only a short-term gain from the capital controls.
"It leads to stabilisation but it is something that will hurt the hryvnia in the medium to long run, making it much more difficult to attract foreign capital in the future."
Fitch cut Ukraine's rating by two notches on Friday to CCC from B- and kept the outlook at negative, citing rising political instability.
For GRAPHIC on emerging market FX performance 2014, see http://link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see http://link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see http://link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see http://link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )
(Editing by Pravin Char)