* Emerging stocks hit six-day lows, euro zone weighs
* Hungarian CDS rise towards record highs, IMF in focus
* Russian CDS at one-week high after outlook cut
By Carolyn Cohn
LONDON, Jan 16 (Reuters) - Emerging stocks hit their
lowest in nearly a week on Monday as the euro zone debt crisis
came back into focus, and Hungary's debt insurance costs rose to
within sight of record highs on international funding worries.
Russian assets were cushioned by strong oil prices,
offsetting news that Fitch had cut Russia's rating outlook to
stable from positive.
Emerging stocks have had a relatively upbeat start to 2012,
rising more than 3 percent this month, after a weak performance
last year.
But last year's themes of debt woes and slowing growth in
the developed world continue to undercut riskier markets, after
Standard Poor's downgraded nine euro zone economies on Friday.
"While the market had already priced the SP move, we're
starting to see increasing impact on emerging markets," said
Rashique Rahman, head of emerging markets' macro strategy at
Morgan Stanley.
"We're seeing financial and funding market stresses
adversely impact global and emerging economy growth, as external
demand declines in the developed world."
The MSCI emerging equities index hit six-day lows
before trimming losses to trade at 948, down 0.54 percent.
The Thomson Reuters emerging Europe index
gained 0.3 percent and emerging sovereign debt spreads
tightened by 1 basis point to 392 bps over U.S. Treasuries.
Emerging European currencies were steady to slightly firmer.
Activity was subdued, with U.S. markets closed for a holiday
on Monday.
Hungarian debt insurance costs rose to their
highest in 11 days on concern about Hungary's access to
international funding, with five-year credit default swaps (CDS)
hitting 697 according to Markit, within sight of record highs of
725 bps hit in early January.
Prime Minister Viktor Orban said on Friday his government
and its lenders were still far apart, hours after the
International Monetary Fund said Hungarian policies must change
before it could discuss a funding deal.
Kazakh CDS dipped to 287 bps after three parties gained
entry to Kazakhstan's parliament, election results showed on
Monday, a small concession to democracy by President Nursultan
Nazarbayev.
Kazakh bank BTA, which is controlled by the
country's sovereign wealth fund, is expected to default on debt
payments, following the expiry later this week of a 10-day grace
period for payment of $160 million in missed coupons. The
country's 2018 Eurobond is trading at around 20 cents on the
dollar.
Russia's CDS rose 4 bps to their highest in a week at 261
bps after Fitch downgraded the outlook on Russia's BBB rating,
citing intensified political risks during the country's election
cycle, weak growth and rising dependency on high oil prices. But
Russian assets showed little reaction.
"You could hardly expect an upgrade in the rating outlook in
the current environment. All agencies have been noting a lack of
structural reforms, and now there are political risks too," said
Vladimir Osakovsky, chief economist at Bank of America Merrill
Lynch in Moscow.
South African debt insurance costs steadied after rising on
Friday when Fitch cut the country's rating outlook to negative.
South African stocks remained close to nine-month highs
.
The Turkish lira rose half a percent, with analysts
ascribing the move to central bank support.
(Additional reporting by Alessandra Prentice and Sebastian Tong
in London and Andrey Ostroukh and Maya Dyakina in Moscow;
Editing by Susan Fenton)
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