RIO DE JANEIRO/LONDON, March 5 (Reuters) - Emerging markets steadied on Wednesday as the United States and Russia held talks on Ukraine, at least temporarily easing East-West tensions that prompted a selloff in global markets earlier this week. Investors were cautious, however, over the outcome of a face-to-face meeting between U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov in Paris and following weaker-than-expected private sector employment data in the United States. Concern about the Chinese economy also drove iron ore prices to a eight-month low, causing shares of Brazilian miner Vale to drop nearly 3 percent and weighing on Brazil's benchmark Bovespa stock index. While most markets were able to shrug off the U.S. data on hopes it was just a temporary weather-related issue, anxiety about Ukraine lingered, curbing larger gains in the broader MSCI index for emerging market stocks, which traded 0.4 percent higher. Investors wondered whether Western powers will succeed in persuading Moscow to pull its forces back in Crimea, a strategy to reduce risk of a possible war that has unnerved global markets. "Investors are still nervous. (Russian President Vladimir) Putin has left all his options open," said Thu Lan Nguyen, emerging market strategist at Commerzbank in Frankfurt. "Investors are worried about an economic impact if the West were to decide on economic sanctions." Russian shares dropped slightly, trimming larger losses recorded earlier in the day, while the rouble was mostly stable against the dollar. Russia has relatively little foreign debt but its balance of payments position is deteriorating because of capital outflows and falling oil revenues. The central bank said it had spent the equivalent of $11.4 billion - more than 2 percent of its foreign currency reserves - on Monday supporting the rouble. "The market is not expecting an escalation in conflict in the short term but Kerry is still considering sanctions... so net net, there is no clear way out of here," said Regis Chatellier, strategist at Societe Generale. Kerry has raised the possibility of economic sanctions such as asset freezes and visa bans on Russian individuals.
CHINA CONCERNS Chinese shares fell 0.9 percent after money-losing Chinese solar equipment producer Chaori Solar said it will not be able to meet interest payments on bonds due on Friday, marking the country's first domestic bond default. The yuan rose 0.25 percent against the dollar, however, after suffering its biggest weekly drop since 1994 last week as the central bank let it fall beyond the official mid-point rate. Many traders thought the move was designed to set the stage for further foreign exchange reforms as China began its annual parliamentary meeting on Wednesday. "The goal is to liberalize the FX regime and financial markets but the problem is there's not a lot of transparency," Nguyen said. "A lot of people expect the yuan to appreciate but it is not a one-way street." Concern about a slowdown in the Chinese economy weighed on countries and companies that are highly dependent on raw materials exports to the world's second-largest economy.
Brazil's Bovespa index slid 0.8 percent, dragged lower by shares of miners, and the Chilean peso weakened 0.5 percent. Chile's economy is highly dependent on copper exports to China. Also weighing on the Chilean peso was data showing the country's economic activity rose at its weakest pace in four years in January. The Brazilian real resumed trading after a long Carnival holiday with gains of nearly 1 percent, but traders said volumes were low, leaving the exchange rate prone to overshoot in any direction.
Key Latin American stock indexes and currencies at 1844 GMT
Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 960.3 0.43 -4.64 MSCI LatAm 2945.52 0.23 -8.19 Brazil Bovespa 46665.06 -0.91 -9.40 Mexico IPC 39110.24 0.07 -8.47 Chile IPSA 3706.85 0.08 0.21 Chile IGPA 18293.65 0.08 0.37 Argentina MerVal 5740.71 -0.75 6.49 Colombia IGBC 12732.89 1.5 -2.59 Peru IGRA 15194.07 -0.11 -3.55 Venezuela IBC 2743.75 -0.89 0.26 Currencies daily % YTD % change change
Brazil real 2.3210 0.97 1.54 Mexico peso 13.241 0.31 -1.59 Chile peso 562.6 -0.52 -6.49 Colombia peso 2038.98 0.45 -5.25 Peru sol 2.8 0.18 -0.25 Argentina peso 7.8800 -0.10 -17.61 Argentina peso 10.45 7.66 -4.31