* Stocks up 0.8 pct off 3-week lows; Korean CDS ease
* Turkish stocks, lira rebound
* Forint up after rate rise; Polish inflation watched
By Sujata Rao
LONDON, Dec 21 (Reuters) - Emerging stocks rose 0.8 percent
on Tuesday, rebounding off three-week lows as tensions on the
Korean peninsula eased, but persistent euro zone worries capped
gains, especially in central Europe.
The MSCI emerging markets index was helped up by strong
closes in the big Asian markets of Shanghai, Seoul, Taipei and
Mumbai. Korean stocks <> hit a 38-month closing high as
North Korea stepped back from confrontation over military drills
conducted by the South on Monday.
The cost of insuring South Korean debt fell as five-year
credit default swaps eased 5 bps to 97 bps, data provider Markit
said. The CDS had risen 10 bps on Monday.
That helped risk appetite broadly, along with comments from
Chinese Vice Premier Wang Qishan that China supports the
measures taken by the European Union and the International
Monetary Fund to calm euro zone debt worries.
However the euro slipped back after a brief rise as ratings
agency Moody's put Portugal on review for a possible downgrade.
Arvid Bohm, emerging equities strategist at SEB said
underlying risk appetite remains robust -- proved by the
market's ability to shrug off the ratings downgrade of Irish
banks on Monday.
But he said worries over Korea and the euro have muted
emerging markets' performance of late.
"We are getting indications that perhaps (Korean tensions)
are easing and that is helping the market. Asia started on a
good footing today which is filtering through to emerging Europe
and should continue into the U.S. session," Bohm said.
South African and Russian markets <.JTOPI> <> were
close to 2-1/2 year highs hit recently, boosted by strong
commodity prices, while Turkish stocks <> bounced one
percent off three-month lows touched in the previous session.
In central Europe, Prague outperformed, rising to seven
month highs <>. It has risen 10 percent in December
outgunning Budapest and Warsaw <> <>, which are up 3
to 5 percent respectively, possibly as Czech monetary policy is
seen remaining accommodative for longer than its neighbours.
Bohm said investors in Turkey have been unnerved by the
central bank's unorthodox policy stance -- it cut interest rates
last week, raising the prospect of higher inflation, but raised
banks' short term reserve requirements by 200 basis points.
Turkish stocks have underperformed broader emerging markets
since then, as has the lira, and Bohm said markets were hesitant
due to uncertainty over how effective the moves might be.
"From the perspective of equity markets, close to 60 percent
of the market capitalisation is comprised of financials. These
measures have direct impact on banks and people do not yet know
how far the implications will go," he added.
The lira rose half a percent after hitting five-month lows
on Monday against the dollar <TRY=>. It has lost 3 percent this
month, but got some respite after the central bank said it was
not targeting specific exchange rate levels. []
Other emerging European currencies were mixed, with the
Czech crown and the Polish zloty trading just above flat to the
euro <EURCZK=> <EURPLN=>, the former weighed down by a
no-confidence vote in the government due later on Tuesday.
The vote is not expected to succeed.
The Hungarian forint rose 0.2 percent <EURHUF=> after the
central bank on Monday raised interest rates for the second time
in two months to 5.75 percent [].
Analysts say forward rate agreements are pricing at least
one more rate rise in coming months but see that as too dovish,
especially given the post-meeting comments.
"We now cannot rule out consecutive tightening in January
and February," ING analysts said in a note. "Forint could
benefit from the rate hike outlook in the short term ... but
upside pressure on yields is likely in early 2011."
Polish markets are waiting for inflation data due at 1300
GMT and the figure could affect the decision of the central bank
which started a two-day policy meeting.
Most analysts expect rates to be held for the 18th
consecutive month, with rate rises seen starting in early 2011.
"If core inflation is above (the forecast) 1.2 percent, the
market is likely to start speculating about the possibility of a
rate hike already in December," said Thulan Nguyen, FX analyst
at Commerzbank in Frankfurt.
"That could give the zloty a temporary boost."
(Editing by Ruth Pitchford)
