EMERGING MARKETS-China optimism props up stocks, currencies struggle

Equities in emerging markets regained ground on Tuesday, supported by news of potential steps by Chinese authorities to stabilise domestic stock markets, while regional currencies were mixed against a softer dollar. MSCI's index of emerging market equities advanced 0.4% by 0900 GMT, with Hong Kong's Hang Seng index leading the charge, jumping 2.6%.

Equities in emerging markets regained ground on Tuesday, supported by news of potential steps by Chinese authorities to stabilise domestic stock markets, while regional currencies were mixed against a softer dollar.

MSCI's index of emerging market equities advanced 0.4% by 0900 GMT, with Hong Kong's Hang Seng index leading the charge, jumping 2.6%. Stocks in mainland China also ended higher after China's cabinet said on Monday it will step up measures to stabilise market confidence. However the index was not far from five-year lows hit last week.

Policymakers are seeking to mobilise about 2 trillion yuan ($278.53 billion) as part of a stabilisation fund to buy shares onshore through the Hong Kong exchange link, according to a Bloomberg News report. China's yuan firmed 0.3% against the dollar. "This is a strong message that conveys Beijing's intention to artificially support Chinese markets," ING strategists said in a research note, but added it was only a temporary fix.

"Ultimately, stronger conviction on a Chinese economic rebound is likely necessary to drive a sustainable recovery in Chinese-linked stocks." Taiwan and South Korea's tech-heavy stock indexes also rose, tracking a positive finish on Wall Street overnight. Equities in Turkey and South Africa gained over 1%.

Japanese shares surged to fresh 34-year highs as the Bank of Japan stood pat on ultra-loose monetary policy. Assets in emerging markets (EM) have been under pressure this year due to concerns around China's economic growth and reduced bets of U.S. interest rate cuts. Investors are now awaiting policy decisions from the European Central Bank (ECB) as well as South Africa and Turkey this week.

Indian shares were among laggards on Tuesday, pulled down by a drop in shares of Zee Entertainment . Among currencies, the South African rand came off three month lows to trade at 19.1161 to the dollar. However, the Israeli shekel and the Turkish lira were weaker.

A broader gauge of EM currencies was muted. Sri Lanka's central bank kept interest rates steady on Tuesday, in line with market expectations as a new tax threatened upward pressure on expenses. The country's CSE index dipped 1.0% while the local currency was flat.

HIGHLIGHTS ** Zee Entertainment slumps 27.9% after failed Sony merger

** Thailand lowers 2024 GDP growth projection to 2.8% ** Turkish cenbank net reserves drop some $6 bln last week

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