LONDON, Sept 13 (Reuters) – Emerging equities eased off
four-month highs on Thursday, pausing after the past week’s 4
percent rally ahead of a U.S. Federal Reserve meeting that is
expected to unveil a third round of bond purchases to support
the economy.
The central bank will release its decision at 1630 GMT, with
Chairman Ben Bernanke to hold a news conference two hours later.
A Reuters poll of investors showed the odds of a third round of
quantitative easing, or QE3, rose to 65 percent.
MSCI’s emerging equities slipped 0.2 percent after
five sessions of gains that have been fuelled by an improving
picture in the euro zone.
“We saw a bit of profit-taking and I expect a wait-and-see
game (before the Fed), with some temptation on part of investors
to take advantage of the prior rally to square positions, but
it’s not very indicative of sentiment,” said Benoit Anne, head
of emerging markets strategy at Societe Generale.
Emerging markets were also pressured by a 0.8 percent drop
in Shanghai where banks were dragged down by reports
they would be forced to step up lending for stimulus projects
Central European currencies were in negative territory
versus the euro, with the Czech crown inching further off recent
one-year highs and the Polish zloty easing from two-week peaks.
Their Asian peers also weakened ahead of the Fed decision.
In Russia, the rouble and stocks eased from four-month highs
ahead of a central bank meeting which according to some analysts
could deliver an interest rate rise.
Slowing growth and rising inflation are creating a dilemma
for the central bank which is trying to establish its
inflation-targeting credentials. Inflation is about to breach
the official target of 5-6 percent for the whole of 2012.
“We think that, on balance, the (central bank) will
prioritise building credibility ahead of the transition to a
pure inflation targeting regime and expect two 25 basis points
hikes of the overnight auction rate this year with the first one
due already today,” SEB analysts said in a note.
Emerging sovereign dollar bond yield spreads were at 293 bps
above Treasuries, the tightest since early-July 2011.
(Reporting by Sujata Rao)
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