Emerging Markets-Equities eye record peak, lira at 6-yr high

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Emerging markets equities rose near to this week's record high in line with firmer global stocks on Friday and the Turkish lira scaled a six-year peak, but investors were cautious ahead of key U.S. jobs data.

The U.S. non-farm payrolls were being watched for clues about the health of the U.S. economy, hit by a downturn in the housing market which sparked a global credit squeeze in recent weeks and fanned expectations of U.S. policy easing.

Economists expect 100,000 U.S. jobs to have been added in September, more than offsetting August's loss of 4,000, the first monthly drop in hiring in four years, which led the Federal Reserve to cut rates by 50 basis points two weeks ago.

Some analysts cautioned higher-yielding, but riskier emerging markets were vulnerable to a souring of risk-taking appetite among investors after the U.S. data, due at 1230 GMT.

The MSCI benchmark emerging equities index rose 0.8 percent to 1,236.12 points, not far off Wednesday's peak of 1,252.41 points.

"The sentiment has been overly bullish and the dynamics too quick in certain segments of the emerging markets," said Barbara Nestor, analyst at Commerzbank.

"But on the other hand the U.S. has gained a lesser weight in the equation as emerging markets are drawing support from the solid growth outlook for their economies," she added.

The high-yielding Turkish lira gained 0.7 percent versus the previous U.S. close to 1.1885 to the dollar, while Turkey's benchmark long-term sovereign bond yield shed 3 basis points to a 5-1/2-month low.

The Hungarian forint, central Europe's highest-yielding currency, rose a third of a percent to 251.3 per euro . The South African rand fell while other emerging market currencies were mostly flat.

"Carry is king," said one London-based currency trader.

Emerging market investors are favouring carry trades in which they sell cheap, low-yield currencies such as the Japanese yen for high-yielding ones such as the lira or forint.

STRESS IN KAZAKHSTAN

Emerging sovereign debt spreads tightened by 2 basis points to 199 basis points over U.S. Treasuries on JP Morgan's Emerging Bond Market Index Plus .

In Kazakhstan the money market was showing continued signs of stress due to the global credit crunch. Weakness in the Kazakh banking sector prompted a warning this week from ratings agency Standard & Poor's that it may downgrade the country's debt.

One-month deposit rates hit 8-year highs around 20 percent and three-month rates rose to 8-year highs near 16 percent.

Kazakhstan's credit default swaps, used by investors as a hedge against a borrower restructuring or defaulting on its debt, were trading at 142-148 basis points, fairly stable from Thursday, according to dealers.

"We believe the squeeze in the local Kazakh markets is yet another example that the global credit crunch is becoming visible in emerging markets -- especially in highly-leveraged economies or in countries with a weak financial infrastructure," said Lars Rasmussen, emering market analyst at Danske Bank.

[PRAGUE/Reuters/Finance.cz]