By Claire Milhench
LONDON, Aug 7 (Reuters) - The Turkish lira rallied on Tuesday after suffering its biggest daily fall in nearly 10 years in the previous session as investors eyed growing tensions between Turkey and the U.S., while improved risk appetite boosted emerging market stocks.
Relations between Turkey and the United States have deteriorated sharply over the last week with Washington imposing sanctions on two Turkish ministers over Turkey's detention of U.S. pastor Andrew Brunson on terrorism charges.
One Monday the lira TRYTOM=D3 fell some 5.5 percent against the dollar, its biggest single day drop in nearly 10 years, after the Trump administration said it was reviewing Turkey's duty free access to U.S. markets, a move that could affect $1.7 billion of Turkish exports. the currency bounced 1.5 percent on Tuesday from a record low of 5.4250 after media reports that a delegation of Turkish officials would go to Washington. may see some stabilisation for the next couple of days until we see how this rapprochement plays out," said Jakob Christensen, head of emerging market research at Danske Bank.
"If it doesn't produce any fruitful solutions we could see further selling given the anxieties in the market," he continued, adding that investors would also be watching out for any possible impact from measures hitting Turkish exports to the U.S. or any constraints on Turkish corporates' refinancing.
Turkey's central bank has also reduced banks' foreign currency reserve requirements to try to stabilise the falling lira. The currency has lost more than 27 percent of its value this year.
Turkish stocks .XU100 rose over 1 percent and beaten down bank shares .XBANK gained 2 percent. But yields on local debt continued to climb, with the benchmark 10-year bond yield TR10YT=RR hitting 19.75 percent, while dollar bonds also remained under pressure.
Turkish five-year credit default swaps also continued to rise, up 2 basis points (bps) from Monday's close to 346 bps, according to IHS Markit data.
Investor sentiment improved across the board after Wall Street's S&P 500 .SPX closed at its highest level since Jan. 29 overnight.
Hong Kong .HSI shares jumped 1.5 percent, although the trade spat between China and the United States showed little sign of de-escalation.
A Chinese newspaper described Trump's belief that a recent fall in Chinese stocks was a sign he was winning the trade war as "wishful thinking". Both the blue chip index and the Shanghai Composite suffered their worst week since February last week. yuan CNY= firmed 0.3 percent with Chinese foreign exchange reserves at $3.118 trillion at the end of July, up from $3.112 trillion at end-June. weaker dollar .DXY also allowed other emerging market currencies to make gains, with South Africa's rand firming ZAR=D3 0.6 percent ahead of manufacturing production data. The country's net foreign reserves fell slightly in July to $42.44 billion. emerging Europe the Russian rouble RUB= firmed 0.3 percent against the dollar and stocks .IMOEX rose 0.7 percent, helped by rising oil prices LCOc1 .
The Hungarian forint EURHUF= firmed 0.1 percent against the euro to two-month highs after industrial output grew by 4.2 percent in annual terms in June, more than expected. GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see http://tmsnrt.rs/2dZbdP5
Net Chg % Chg % Chg
Morgan Stanley (NYSE: MS )
Emrg Mkt Indx .MSCIEF 1078.61
+7.61 +0.71 -6.89
-3.52 -0.32 +0.83
+3.08 +0.13 -6.59
37033.08 -226.72 -0.61 -5.95
8174.46 -12.59 -0.15 +5.43
+1.63 +0.21 -5.12
+9.83 +0.86 -0.52
.JTOPI 51300.16 +515.72 +1.02 -2.35
.XU100 95154.05 +980.07 +1.04 -17.50
2779.30 +74.14 +2.74 -15.96
.BSESN 37747.06 +55.17 +0.15 +10.84
close currency currency
% change % change
South Africa ZAR=
5.33 +1.59 -27.77
3.74 -0.01 -11.34
Index Strip Spd Chg %Rtn Index
Sov'gn Debt 11EML EMBIG 361
.01 7 78.47 1
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