Reuters: US Dollar Report: EMERGING MARKETS-China steps reassure stocks; rupee leads FX losses

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EMERGING MARKETS-China steps reassure stocks; rupee leads FX losses Jul 30th 2013, 09:57 LONDON, July 30 | Tue Jul 30, 2013 5:57am EDT LONDON, July 30 (Reuters) - Emerging stocks inched higher on Tuesday after China moved to avert a repeat of June's interbank liquidity crunch, while currencies lost more ground with India's rupee down almost 1 percent against the dollar. In China, stocks rose more than half a percent , after Monday's 2 percent losses, led by banks which benefited from the central bank's injection of 17 billion yuan ($2.7 billion) in seven-day reverse bond repurchase agreements. While that brought down the seven day repo short-term money rates in China remain relatively high, with the reverse repo rate set at 4.4 percent, compared to the last official guidance of 3.35 percent. "There was a cash crunch at the end of June where the PBoC was willing to inflict pain on the financial sector in order to get them to slow credit growth and there were some lingering concerns that we might be on the brink of another one of those episodes," said Mark Williams, chief Asia economist at Capital Economics. "The latest injection shows that it is not planning on putting us through that again...it is alleviating some of those concerns." The gains in China lifted emerging stocks 0.3 percent , though the moves come as investors await this week's U.S. Federal Reserve meeting, China's official manufacturing managers' index and U.S. jobs data. While the Fed and the European and British central banks are expected to reiterate their commitment to loose monetary policy for a while longer, emerging assets are suffering the fallout of a slowing China and a tougher funding environment. "I think the Fed remains on (dovish) track and the ECB will not rock the boat. So the underlying story really is China and what the PBoC will do. That is the biggest danger for EM assets," said Lars Christensen, chief emerging markets analyst at Danske Bank. Budapest was the worst equity performer, with stocks in its biggest bank OTP extending losses to fall more than 2 percent. The Budapest stock market fell more than 1 percent adding to Monday's 1.65 percent fall, while the forint lost 0.2 percent to the dollar inching towardss 300 per euro for the first time since end-June. The worst performing currency was the Indian rupee which fell 1 percent to the dollar after the central bank left interest rates unchanged and said it might roll back recent liquidity tightening measures. The rupee has now erased all gains chalked up since July 15 when the Reserve Bank of India announced steps to drain cash and followed up with additional tightening on July 23. Elsewhere, there was more pain for Hungary's OTP Bank, where shares fell 2 percent, adding to Monday's 5 percent plunge. The losses were caused by government plans to rewrite foreign currency mortgages at the expense of banks and the sale of shares by another OTP board member. "This has once again raised concerns that management are selling down their stakes in anticipation of yet more punitive measures from the government related to bailing out FX borrowers," SEB analysts said in a note. Meanwhile the Turkish lira was flat to slightly weaker as central bank governor Erdem Basci said recent tightening steps were sufficient but the bank could implement additional tightening when required. Egyptian shares rallied 0.6 percent after two days of losses. Link this Share this Digg this Email Reprints

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