Emerging Markets-Stocks fall 2 pct, East European FX retreats

                                
 * Stocks sink over 2 pct but above 2008 lows
                                
 * Hungary forint, Polish zloty, Czech crown down from highs
                                
 * Dollar weakness sends lira, rand and shekel higher 
                                
     
                                
 By Sebastian Tong
                                
 LONDON, July 15 (Reuters) - Emerging stocks sank over 2
percent on Tuesday on a wave on investor concern over the global
banking system while the currencies of the Czech Republic,
Hungary and Poland softened from recent record highs against the
euro.
                                
 The Turkish lira, the Israel shekel and the South African
rand advanced against the U.S. dollar, which slid to a record
low against the euro. [ID:nL15536069]
                                
 "It's the equivalent of the July crisis last year with this
continuous stream of bad news. But with the dollar generically
weaker, most of the currencies are doing better at least against
the dollar" said Elisabeth Gruie, BNP Paribas currency
strategist.
                                
 Fears over the solvency of major Western banks buffeted
global markets after the U.S. Federal Reserve and Treasury
Department mounted a rescue plan to help support mortgage
lenders Fannie Mae and Freddie Mac following the sharp fall last
week in their stock prices.
                                
 Gloomier sentiment on the world economy also weighed in,
sending MSCI's main world stock index <.MIWD00000PUS> to a
21-month low.
                                
 At 1030 GMT, MSCI's benchmark emerging stocks index
<.MSCIEF> was down 2.35 percent to 1,018.57, its lowest level in
a week but above its 2008 low of 1,011.42 on Jan 22.
  Emerging sovereign spreads <11EMJ> widened 4 basis points on
heightened risk aversion to trade at 311 bps over U.S.
Treasuries.
                                

                                
 BONDS AND CURRENCIES
                                
 Intensifying fears over inflation resulted in bond markets
having one of their worst months in June, said Investec Asset
Management in a report.
                                
 Investec said yields on local-currency emerging market debt,
which were sought out by investors earlier in the year amid
dollar weakness, spiked up 0.75 percent to 8.5 percent.
[ID:nL15605634] 
The Hungarian forint, the Polish zloty and the Czech crown,
which hit record highs against the euro in recent sessions,
retreated in choppy trade in the face of a firmer euro.
                                
 The forint <EURHUF> slipped 0.84 percent to 232.19 versus
the single currency while the crown <EURCZK=> softened 0.02
percent to 23.31.
                                
 Comments by the Polish central bank governor expressing
concern over the recent appreciation of the zloty <EURPLN=>,
also helped pressure the currency, sending it 0.13 percent lower
against the euro. [ID:nL15507678]
Poland is set to release June inflation data at 1200 GMT.
                                
 Israel, which is also unveiling consumer price figures later
in the day, saw its shekel currency rise over 1 percent against
the dollar <ILS=>.
                                
 "With a period of elevated inflation still ahead, we believe
that the Bank of Israel will be obliged to continue tightening
monetary policy. We are forecasting a 25 bps hike in the base
rate to 4.0 percent at the next meeting on July 28," said
Dresdner Kleinwort in a research note.
                                
 Meanwhile, general U.S. dollar weakness allowed the rand and
the lira to firm 0.32 percent and 0.19 percent against the
greenback respectively.
                                
 Turkish assets remain vulnerable amid tensions between its
pro-secularist military and its ruling AK Party which has been
accused of trying to turn the country into an Islamic state.
                                
(Additional reporting by Peter Apps)