EMERGING MARKETS-China bounce helps emerging assets despite trade, Turkey woes

Emerging market stocks and currencies found support on Tuesday from a soft dollar and a positive resumption of trading on Chinese markets after a week-long holiday. But optimism was tempered by concerns about the U.S.-China trade talks and the fallout of Turkey's military action in Syria.

The Turkish lira barely made up its lost ground, edging up 0.3% following a 2.4% slump on Monday after U.S. President Donald Trump threatened to destroy its economy if Ankara took a planned military strike in Syria too far. The contradictory message followed Trump's decision on Sunday to pull 50 American special forces troops out of northeastern Syria, opening the door for a Turkish incursion.

"There is a little bit of risk appetite coming, and this has helped the lira to a small bounce back," said Antje Praefcke, FX and EM analyst at Commerzbank in Frankfurt. "The lira is generally under pressure because of the Syria issue, which is a risk." Investors have been closely watching tense ties between Ankara and Washington in recent months, with the countries at odds over a range of issues, including Syria and Turkey's purchase of a Russian missile defense system.

Turkey's sovereign dollar bonds slid further, while its main BIST 100 stock index, down about 2%, hit a two-week low. With few signs of progress in the U.S.-China trade dispute, investors were cautious ahead of a round of crucial talks between trade officials this week.

Indeed, the prospects of a deal dimmed after Washington on Monday blacklisted Chinese companies over Beijing's treatment of predominantly Muslim ethnic minorities. Chinese stocks, however, closed modestly higher as a dim services sector survey reinforced hopes that Beijing will roll out more stimulus measures.

Hong Kong-listed shares also rose, despite concerns over violent protests, with shares in Hong Kong's bourse HKEX up 2% after it scrapped its unsolicited $39 billion approach for the London Stock Exchange Group. South Korea was also a bright spot, with the Kospi jumping 1% after an upbeat forecast from the world's biggest semiconductor firm Samsung Electronics.

In emerging Europe, the Hungarian forint edged lower after data showed consumer inflation slowed to an annual 2.8% in September, below an expected 3% rise, according to a Reuters poll.

Also Read: Turkey to support local companies hit by Thomas Cook; 21K customers in country