Emerging FX-High-yielders up as US data boosts risk appetite

...movements in emerging stock markets. The combined report will continue to carry the two access codes EMRG/FRX and EMRG/DBT. If you have any comments or suggestions on the planned change, please e-mail: mike.dolan@reuters.com

By Sujata Rao

LONDON, June 18 (Reuters) - The Turkish lira surged to a 15-month peak on Monday as last week's U.S. inflation data boosted risk appetite, although low-yield central European currencies saw some of their recent gains fizzle out.

With U.S. 10-year Treasury yields near 5.20 percent -- 60 basis points higher than six weeks ago -- analysts warn that emerging markets cannot count on big gains. But carry trade investors, reassured about the overall health of the U.S. economy, seem happy to re-enter riskier assets for now.

This pushed emerging equities to a fresh all-time high , while the yen -- a popular carry trade funding currency -- hit a record low against the euro.

Highest-yield currencies benefited especially, with the lira extending Friday's gains to touch a 15-month high of 1.2985 per dollar while the South African rand rose half a percent to a two-week high of 7.094 per dollar .

"U.S. data has shown strong growth and low inflation so the market is buying into that. It's probably not sustainable in the long run but for now the numbers are supporting the rally," said Lars Christensen, senior analyst at Danske Bank in Copenhagen.

Defensive positioning before the data fuelled Friday's bounce but Christensen said still-high U.S. yields, continuing uncertainty over global interest rates and domestic factors such as Turkey's July election are likely to cap emerging market gains.

"We are at very strong levels on everything and given the global and domestic backdrop, the lira for instance should not be at these levels. So there is a bit of complacency in the market," he added.

The data had helped Brazil's real to a record close on Friday while pushing Mexico's peso up over one percent to a two-week high on Friday .

Gains in central Europe were muted as relatively low yields and the bearish inflation outlook in some of the countries are starting to pressure local bond markets.

However, the Hungarian forint traded at a three-week high versus the euro before pulling back and the zloty held just below the two-week high hit late on Friday .

"We had a small recovery off lows on Friday which was to be expected. This morning they wanted to continue the downtrend but that failed. But I think people will still be happy to sell into (euro) rallies," a trader in London said, highlighting 3.80 for zloty and 250.5 for forint as key levels.

Investors are waiting for data -- including Polish and Hungarian wage numbers due on Tuesday -- before next week's central bank meetings though most analysts expect interest rates to be held steady this month.

Most assets are likely to to hold steady this week due to a light data calendar but U.S. housing starts and building permit figures due on Tuesday, may show if the housing market is bottoming out.

Barclays Capital analysts believe the emerging market carry trade will continue, albeit on a more selective basis, as despite the recent rise in long-end yields, investors remain flush with cash and the yen is continuing to languish.

"The high cash levels along with solid returns is keeping investors' risk appetite high, especially towards markets where the carry is attractive, even if the fundamentals are not quite solid," they told clients in a note.