* Emerging stocks snap 6-days of losses with 1 pct jump
* Hungarian stocks, currency reverse early gains on IMF news
* Indian, Chinese, Indonesian currencies gain
By Sujata Rao
LONDON, Dec 16 (Reuters) - Emerging stocks snapped a
six-day losing streak on Friday, rising 1 percent on some signs
of U.S. economic recovery, but Hungarian markets reversed early
sharp gains on news loan talks with the IMF and European
Commission had broken down.
By 1200 GMT emerging stocks on the MSCI rose 0.95 percent to
rebound off two-week highs but are set to end the week with
losses of over 3 percent.
While sentiment has been soured by fears of an impending
downgrade for euro zone states, U.S. data showing a fall in
unemployment and a stronger than expected rise in factory
activity is providing some respite.
"Generally, sentiment is better as we've seen numbers out of
the U.S. that are supportive," said Luis Costa, head of CEEMEA
debt and FX strategy at Citi.
"There are rumours of sovereign ratings downgrades in the
European Union but by this stage you really have to ask if any
investor should be surprised if that actually happens. That..
should have been priced in by now."
But there was bad news in Hungary with new-found optimism
over a deal to resolve the country's FX mortgage problem
fizzling out after news that an International Monetary Fund
delegation, in Budapest for informal talks, had left ahead of
schedule. A source told Reuters the IMF had walked away from the
talks.
European Commission chairman Ollie Rehn said his group had
done the same, citing a controversial new government bill that
many say threatens central bank independence and effectively
demotes governor Andras Simor, who is respected by markets.
The news threw earlier gains into reverse, with the 2
percent stock market gains fuelled by the FX mortgage deal
melting away and the index falling into the red. The forint fell
0.7 percent versus the euro after a strong start to
the session, bucking the regional trend.
"This is because of the news about the IMF talks," said a
currency dealer in Budapest, forecasting more falls to come.
If IMF talks break down it will be the latest in a steady
stream of bad economic news from Hungary which has external
financing needs of 4 billion euros next year. The tough global
environment and stiff competition for funds from other regional
issuers makes the IMF one of the few funding sources available
to Hungary.
Simon Quijano-Evans, chief EEMEA economist at ING Bank in
London, noted that the Hungarian government rejected any
conditionality attached to an IMF loan, yet "wants to push
through measures the IMF cannot accept."
"We are likely to get more short-term spillover into assets
until the government announces where it will get the 2012
external funding from," Quijano-Evans said.
Hungary's portion of JPMorgan's benchmark dollar bond index
was flat over U.S. Treasuries, giving up earlier gains.
Hungarian yield spreads had contracted 10 bps early on Friday.
The forint could get some respite next week as the central
bank is expected to raise interest rates by 50 basis points for
the second month in a row. But this could lead to more conflict
with the government -- Prime Minister Viktor Orban on Friday
called on the central bank to pursue "growth-friendly" policies.
Elsewhere, the South African rand rose 0.7 percent to
the dollar, on track for the worst annual performance in 3 years
with losses of over 20 percent. While that is a risk to the
inflation target, the central bank is expected to hold rates
steady during 2012.
Bonds rose, with yields down 7-8 bps across the curve.
Earlier in Asia, the Indonesian rupiah firmed half a percent
to the dollar after Fitch awarded the country an investment
grade rating for the first time in 14 years.
The Indian rupee jumped 1.7 percent off record lows to the
dollar after the central bank held interest rates steady
and reduced trading limits for banks in the FX market making it
hard to keep speculative positions open for a long time.
China's yuan jumped to a record high after the central
bank's suspected intervention yuan via state-run banks that were
offering large amounts of dollars..
Emerging sovereign dollar bonds were 3 bps tighter over U.S.
Treasuries
(Additional reporting by Sebastian Tong; Editing by John
Stonestreet)
© Thomson Reuters 2011 All rights reserved
