EMERGING MARKETS-Stocks flat, Turkish lira slips as policy uncertainty persists

Emerging market stocks were subdued on Tuesday as concerns about a U.S. economic slowdown dampened sentiment, while Turkey's lira weakened nearly 1% against the dollar as investors awaited clarity about the direction of monetary policy. The EM equities index held near the unchanged mark at 986.35 points by 0900 GMT, with currencies also flat.

Emerging market stocks were subdued on Tuesday as concerns about a U.S. economic slowdown dampened sentiment, while Turkey's lira weakened nearly 1% against the dollar as investors awaited clarity about the direction of monetary policy.

The EM equities index held near the unchanged mark at 986.35 points by 0900 GMT, with currencies also flat. Stocks in mainland China gave up early gains to fall about 1%, while China's yuan lost 0.2% against the dollar, with investors awaiting trade data for May due on Wednesday.

"We think that the strongest momentum in China's recovery is already in the past. But I think at the moment investors in our view are a bit too pessimistic about it," said Diana Iovanel, Markets Economist at Capital Economics. China will likely further cut banks' reserve ratio and interest rates in the second half of this year to support the economy, the China Securities Journal reported on Tuesday.

Meanwhile, lacklustre services sector data from the United States has fuelled hopes of a pause in interest rate hikes, but has also exacerbated concerns of a slowdown in the world's largest economy. The Turkish lira was last at 21.49 versus the dollar compared to 21.25 the previous day.

While the appointment of veteran policymaker Mehmet Simsek as Turkey's new finance minister was welcomed by investors, skepticism has emerged over whether he will be able to shift monetary policy away from President Tayyip Erdogan's unorthodox strategy of cutting interest rates. "We don't know yet if there will be just a name on paper or if they will actually change policies a bit towards more orthodoxy," Iovanel added.

According to JPMorgan economists, an interest rate hike to 25% from the current 8.5% is on the cards for Turkey's Monetary Policy Committee's upcoming meeting on June 22, "if not earlier." The South African rand edged 0.3% higher against the dollar, gaining for the fourth straight day ahead of the release of first quarter gross domestic product (GDP) data.

The Polish zloty slipped 0.4% ahead of a local interest rate decision. Pakistani Prime Minister Shehbaz Sharif is hopeful of finalising a deal with the International Monetary Fund (IMF) this month, he said in an interview with Turkish news agency Anadolu on Monday.

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