Emerging Markets-Drop as risk aversion rises

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Emerging markets fell on Monday, with equities, debt and currencies falling as fear of potential contagion from the U.S. subprime crisis hit asset prices.

Equities led the selloff with the MSCI Emerging Markets Free Index shedding 2.42 percent, but debt spreads widened as well with the JPMorgan Emerging Markets Bond Index Plus (EMBI-plus) three basis points wider at 226 bps over Treasuries.

The Romanian leu was hardest hit of emerging European currencies, reaching its weakest level since November 2006, but the Hungarian forint also underperformed, falling to 254.80 to the euro from closing levels on Friday of 253.80.

By 1115 GMT the leu had fallen to 3.4513 per euro from Friday's close of 3.4157.

"The story is very much rising risk aversion... It is centred in the countries with the biggest current account deficits," said Lars Christensen, strategist at Danske Bank. "Romania is a little bit special ... The leu did not really benefit from the rally after August."

Hungarian inflation data on Tuesday and the approaching year-end, along with the relative strength of the Turkish lira and South African rand against the dollar despite falls on Friday and Monday, will limit investors' willingness to take new positions.

Christensen said that while the Japanese yen's rise to 18-month highs had already made life uncomfortable for the carry trade, any more sustained strengthening of the Swiss franc against the dollar would be especially damaging for central Europe.

One-month dollar/yen volatility spiked up to 16.55 percent, closing in on peaks of 22.2 percent set during the height of the credit market crunch in mid-August , making yields on offer in emerging markets far less enticing.

(Reporting by David Chance)

Keywords: MARKETS EMERGING/

  Emerging Markets Prices from Reuters 
 Equities                  Latest    Net Chg  % Chg  % Chg 
                                                     on year 
 Morgan Stanley   
 Emrg Mkt Indx    1246.93   -31.10   -2.43  +36.63 
 Czech Rep            1826.20    -5.90   -0.32  +14.93 
 Poland            3576.32   -30.30   -0.84   +8.85 
 Hungary            26650.49  -244.39   -0.91   +7.27 
 Slovakia             446.28    +0.48   +0.11   +7.38 
 Romania            9026.21  -295.22   -3.17  +12.12 
 Russia             2252.81    -9.30   -0.41  +17.22 
 South Africa     28172.64  +118.39   +0.42  +24.62 
 Turkey           53800.74  +111.66   +0.21  +37.54 
 China              5187.74  -127.81   -2.40  +93.90 
 
 Currencies              Latest    Prev    Local    Local   
                                   close   currency currency 
                                           % change % change 
                                                    in 2007 
 Czech Rep       26.63     26.58   -0.18    +3.19 
 Poland           3.64      3.64   -0.21    +5.08 
 Hungary        254.45    253.60   -0.33    -1.30 
 Slovakia        32.97     32.98   +0.03    +4.41 
 Romania          3.45      3.42   -0.88    -1.97 
 Ukraine             5.04      5.03   -0.20    +0.16 
 South Africa        6.75      6.60   -2.21    +3.57 
 Kenya              66.55     66.45   -0.15    +4.51 
 Israel              3.96      3.93   -0.85    +6.31 
 Turkey              1.22      1.20   -1.36   +16.46 
 
 Debt                 Index   Strip Spd  Chg   %Rtn   Index 
 Sov'gn Debt   EMBI+     226       3    0.05   428.99 
 
 All data taken from Reuters at 1153 GMT. 
 Currency percent change calculated from the daily U.S. 
 close at 2130 GMT. 
 
  
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[BUDAPEST/Reuters/Finance.cz]