EMERGING MARKETS-Fed rate pause hopes boost stocks, China automakers drag

Emerging market stocks climbed on Thursday as easing core U.S. inflation kept alive bets of a pause in rate hikes by the Federal Reserve next week, while Chinese electric vehicle stocks were a drag amid concerns over a probe by the European Union. MSCI's index for emerging market stocks gained 0.6% by 0905 GMT, following two straight sessions of declines, though China's blue-chip shares bucked the trend to fall 0.1%.

Emerging market stocks climbed on Thursday as easing core U.S. inflation kept alive bets of a pause in rate hikes by the Federal Reserve next week, while Chinese electric vehicle stocks were a drag amid concerns over a probe by the European Union.

MSCI's index for emerging market stocks gained 0.6% by 0905 GMT, following two straight sessions of declines, though China's blue-chip shares bucked the trend to fall 0.1%. Following the announcement of an investigation into whether to impose punitive tariffs to protect European Union producers against imports of subsidised Chinese electric vehicles (EV), Beijing warned the move would damage economic and trade relations.

Shares of market leader BYD, which has sales exposure in Europe, dropped 3.1%, while China's automobiles index was down 0.6%. Adding to investor worries about China, rating agency Moody's cut its outlook on the country's embattled property sector to negative from stable, leading the Hang Seng Mainland Properties index to tumble 1.7%.

Other bourses in Asia rose, with South Korean shares up 1.5% as global market sentiment received a boost after data on Wednesday showing a small rise in underlying U.S. inflation fueled expectations that the Fed could keep rates unchanged on Sept. 20. "U.S. inflation was a non-event as it did little to alter Fed expectations, but what it made clear was that the final stretch of disinflation will be bumpy," Charu Chanana, market strategist at Saxo Markets said.

The European Central Bank's interest rate decision due at 1215 GMT will give further clarity on the direction for global interest rates. Central and eastern European currencies were subdued on Thursday ahead of the decision, with the Hungarian forint down 0.1% against the euro. A hike from the ECB would cut into already narrowing rate differentials in the region.

Emerging market currencies rose 0.1% against a weaker dollar. South Africa's rand slipped 0.2% against the dollar ahead of the release of the country's total gold and mining production figures for July.

Russia's rouble steadied near 96 to the dollar in the run up to a local interest rate decision on Friday. Investors are also awaiting monetary policy decisions from Pakistan and Peru later in the day.

For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see For TURKISH market report, see

For RUSSIAN market report, see