* Higher bond yields hit risky assets
* Awaits minutes of Hungary central bank meeting
* Ukraine extends VTB loan tenure
By Duncan Miriri
LONDON, Dec 8 (Reuters) - Emerging stocks fell one percent
and currencies retreated on Wednesday, as a jump in U.S. and
German government debt yields overshadowed rising optimism over
economic recovery in the industrialised world.
MSCI's emerging equities index <.MSCIEF> ended five straight
sessions of gains, retreating from a 3-/12-week high hit in the
previous session and underperforming the broader global equity
index <.MIWD00000PUS>.
U.S. tax cuts and the prospect of further monetary stimulus
have boosted optimism about economic recovery, although
investors remain worried about the euro zone's debt troubles.
Investors booked profits from recent strong gains in
emerging equities.
"The rise in bond yields in the developed markets, and
particularly in the euro zone, is affecting risk sentiment
negatively," said Murat Toprak, emerging markets strategist at
HSBC in London.
"We have a slightly negative environment for emerging
currencies," he added, noting the rise in the U.S. dollar.
The greenback rose and German 10-year yields topped a
six-month high of 3.20 percent following a selloff in U.S.
Treasuries on Tuesday.
Asian stocks closed deep in the red but Central European
markets <> fared slightly better, losing around 0.3
percent. Russia was the worst performer, falling one percent as
it retreated from 28-month highs hit on Tuesday.
Moscow has gained around 10 percent so far this month,
boosted by high oil prices, higher-than-consensus corporate
results and the European Union's backing for Russia to join the
World Trade Organisation.
On currency markets, the Polish zloty led falls in emerging
Europe, shedding 0.6 percent to the euro as concerns grew about
Poland's budget deficit, expected at around 8 percent of gross
domestic product. It was nearly at a two-week low.
While Polish fundamentals are better and debt levels lower
than Hungary, many fear it is not doing enough to deal with the
deficit problem. Hungary was hit with a two-notch downgrade this
week and a Polish rate-setter said negative sentiment could
spill over into Poland's bonds as well.
The Hungarian forint <EURHUF=> eased marginally against the
euro, ahead of the release of minutes of the central bank's last
meeting. []
A dealer in Budapest said the forint was outperforming
because the government had lifted its 2011 GDP growth forecast
to over 3 percent and had solved its short-term deficit problem
by diverting private pension fund assets into the state budget.
Toprak of HSBC expects the Hungarian central bank to raise
interest rates again and said the minutes could possibly shed
light on how the bank views the risk environment.
But emerging assets will stay in ranges for now, he said,
adding: "Investors are unlikely to take positions into year-end
so currencies will ease over in the sessions ahead."
In Ukraine, the government said it is extending by six
months the term of a $2 billion loan from Russia's VTB
<VTBR.MM>. It took the six-month VTB bridge loan in June to help
the government plug holes in the budget.
There was no immediate market reaction.
The sovereign debt index for emerging markets saw spreads to
U.S. Treasuries widen by 2 basis points versus U.S. Treasuries
<11EMJ> <11EML>.
(Editing by Catherine Evans)
