By Karin Strohecker
LONDON, July 4 (Reuters) - Emerging stocks took a tumble on Tuesday as Pyongyang's latest missile test heightened tensions on the Korean peninsula and added to a correction in China, while currencies were torn between lower commodity prices and a weaker dollar.
MSCI's emerging equity benchmark .MSCIEF fell 0.7 percent - its sharpest one-day drop in nearly three weeks - after losses among Asian heavyweights Taiwan .TWII and South Korea .KS11 as the North Korean missile landed in Japanese waters. in Hong Kong .HSI fell 1.5 percent, their steepest daily fall in more than half a year, while Chinese mainland equities .CSI300 turned tail after a rally following their inclusion in a key MSCI index continued to unwind. in South Africa .JTOPI , Poland .WIG20 and Romania .BETI all chalked up losses.
Major central banks turning more hawkish and higher core bond yields are also weighing, said Kiran Kowshik, EM FX strategy, UniCredit.
"The bigger-picture driver for these movements you are seeing in emerging market currencies at least over the past two weeks, are signs of a more hawkish turn from central banks - including the ECB, Fed and the Bank of England," Kowshik said.
"At the same time, when oil prices fall you tend to see inflation expectations fall as well - those two things together - nominal bond yields moving up and inflation expectations moving down - take real rates higher," he said.
The South Korean won KRW= dropped to a more than 16-week low, while currencies in oil producers Russia RUB= and Kazakhstan KZT= eased. South Africa's rand ZAR= and Turkey's lira TRY= strengthened around 0.2 percent.
Investors were watching for further developments in the Gulf, where Qatar faces a Tuesday night deadline to comply with a list of demands by four Arab powers which accuse Doha of supporting terrorism.
Saudi Arabia, Egypt, the United Arab Emirates and Bahrain have listed 13 demands including ejecting Turkish troops based in Qatar and shutting al Jazeera TV - requests so severe, says Qatar, that they seem designed to be rejected.
Qatar assets have suffered in recent weeks, but the stock market .QSI continued rebounding from recent lows, gaining 0.5 percent. Meanwhile, profit-taking in a few Saudi blue chips dragged down the region's largest stock market .TASI by 1.3 percent.
For 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
For CENTRAL EUROPE market report, see CEE/
For TURKISH market report, see .IS
For RUSSIAN market report, see RU/RUB ) Emerging Markets Prices from Reuters
Net Chg % Chg % Chg
Morgan Stanley (NYSE: MS )
Emrg Mkt Indx .MSCIEF 1007.77
-6.47 -0.64 +16.87
+2.16 +0.22 +6.71
2305.60 -18.14 -0.78 +18.36
34803.75 +22.87 +0.07 +8.75
7835.25 -20.78 -0.26 +10.59
+1.29 +0.16 +28.79
+4.56 +0.45 -12.01
.JTOPI 45786.69 -207.75 -0.45 +4.29
.XU100 01041.34 +519.04 +0.52 +29.31
3183.47 -12.44 -0.39 +2.57
.BSESN 31259.45 +37.83 +0.12 +17.40
close currency currency
% change % change
South Africa ZAR=
18.22 +0.22 +13.97
Index Strip Spd Chg %Rtn Index
Sov'gn Debt 11EML EMBIG 327
.03 7 84.17 1
All data taken from Reuters at 08:37 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
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