LONDON, June 28 (Reuters) - Emerging market shares fell on
Thursday, tracking developed markets on expectations that a
European Union summit will fail to address the bloc's protracted
debt crisis, while military tensions weighed on Turkish assets.
MSCI's emerging equity index slipped around 0.40 percent
, losing ground after two days of gains as divisions
among European leaders ahead of the two-day summit starting
later in the day hit sentiment.
Turkish shares fell half a percent and the lira
currency plumbed two-week lows, reacting as Turkish troops and
military vehicles were deployed towards the border with Syria
after Prime Minister Tayyip Erdogan gave orders to react to any
Syrian threat approaching the frontier.
The lira was also hurt by a suggestion from the central bank
governor that the inflation forecast could be trimmed, boosting
expectations of an interest rate cut.
Turkish credit default swaps inched up 7 bps to 258 bps,
according to Markit, and Turkish dollar bonds' yield premium to
U.S. Treasuries rose 7 basis points, underperforming the broader
emerging debt index.
"The lira has weakened compared to this morning for a few
reasons, the troop movements on the Syrian border, the central
bank governor's comments and lower risk appetite," said Tufan
Comert, a strategist at Garanti Securities in Istanbul.
Other emerging currencies also slid, with the Hungarian
forint down 0.6 percent against the euro. News that Hungary is
clearing a path to signing an IMF-led financing deal is being
offset by pessimism on the upcoming EU summit, analysts said.
"The focus of the moment is on the EU summit," said Manik
Narain, emerging FX strategist at UBS.
"The relief rally we saw in the forint is running out of
steam. A lot of good news is already priced in. Markets have
positioned for the completion of the IMF deal in six months and
for the central bank cutting rates but that may be difficult."
Other regional currencies also fell, with the Polish zloty
down 0.7 percent.
Earlier in the day, China's main stock index closed
down 1 percent, extending a losing streak for a seventh day amid
worries over a slowdown in the domestic economy and the euro
zone crisis.
(Reporting by Ingrid Melander; Editing by John Stonestreet)
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