By Karin Strohecker
LONDON, June 7 (Reuters) - Middle East tensions, Britain's election and Donald Trump's troubles combined to dampen investors' risk appetite on emerging markets on Wednesday, with currencies suffering and stocks edging lower for a second day.
The decision by several Arab states to cut diplomatic ties with Qatar, accusing it of supporting terrorism, made markets - especially in the region - uneasy
Adding to the frayed nerves were three key events scheduled for Thursday - Britain's general election, a European Central Bank policy meeting and testimony by former FBI director James Comey which could impact on U.S. President Donald Trump's economic agenda. emerging stock benchmark .MSCIEF slipped 0.2 percent, with heavyweight South Korea .KS11 falling 0.4 percent, while bourses elsewhere in Asia .HIS .KLSE , Turkey .XU100 and parts of emerging Europe .BETI also suffered losses.
"There are worries about the GCC (Gulf Cooperation Council) and Qatar and how that will play out ... It's a geopolitical oil story that creates a risk off sentiment," said Per Hammarlund at SEB.
"In the U.K., people are sitting on the sidelines and waiting to see how this will pan out - if you have an acrimonious Brexit that will hurt the Central and Eastern European countries, and it could hurt the EU too, so it has wider ramifications."
Markets in the Gulf remained under some pressure after U.S. President Donald Trump supported Saudi Arabia against Qatar. stock exchange .QSI fell 0.3 percent, having tumbled nearly 9 percent over the last two days. Doha's dollar-denominated debt edged lower across the curve, with some issues trading at their weakest in around 2-1/2 months. fared little better, despite a steady dollar.
South Africa's rand ZAR= had a soft start to the session after data showed on Tuesday that Africa's most industrialized nation slipped into recession for the first time in eight years.
The news raised the prospect of further credit rating downgrades and heaped pressure on President Jacob Zuma, who is already facing corruption allegations. the rand recovered most of its losses to trade 0.2 percent weaker after central bank data showed FX reserves grew unexpectedly. downgrade question is definitely one of the factors," said SEB's Hammarlund, referring to Moody's next assessment scheduled for release on Friday.
"But if you look at the rand and emerging markets in general over the longer term, you are still looking at a positive cycle - the worries about the rand will be short lived."
In Poland, central bank policy makers are scheduled to conclude their interest rate setting meeting, though analysts expect no change until the third quarter of 2018 given the benign outlook for inflation. Interest rates are at an all-time low of 1.5 percent. GRAPHIC on emerging market FX performance 2017, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see http://tmsnrt.rs/2dZbdP5
FT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
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