Nov. 20 (Bloomberg) -- Emerging-market stocks dropped to the lowest level in a week and currencies fell as oil prices slumped and the European Central Bank president said policy makers will withdraw emergency cash gradually.

OAO Rosneft and OAO Lukoil, Russia’s biggest oil companies, lost more than 1 percent as oil prices declined. Aluminum Corp. of China Ltd. and Industrial & Commercial Bank of China Ltd. led declines among Chinese stocks amid concern that recent gains outpaced prospects for earnings growth. In Latin America, Mexico’s Bolsa declined 0.5 percent.

The MSCI Emerging Markets Index fell 0.4 percent to 965.08 as of 5 p.m. in New York. The measure gained 0.3 percent over the past five days, the third straight weekly advance.

Russia’s Micex Index dropped 0.1 percent to 1,334.15. The Shanghai Composite Index declined 0.4 percent, sliding from its highest level since Aug. 6 and paring its weekly gain to 3.8 percent. India’s Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 1.4 percent.

Twenty of the 26 emerging-market currencies tracked by Bloomberg declined. the Czech koruna was the worst performer, dropping 1.5 percent. The Polish zloty slumped 0.8 percent after the finance ministry said public debt rose 1.7 percent in September from the previous month.

“There were some ill-founded rumors about problems with the sovereign bonds in Ukraine that created nervousness around the markets,” said Benoit Anne, head of emerging market foreign-currency and debt strategy at Bank of America Corp.’s Merrill Lynch.

Ukraine

Ukraine’s creditworthiness may be deteriorating as the state rail company restructures its debt. Ukrzaliznytsya, the Ukrainian state rail company, has missed last week a principal payment on its $440 million three-year syndicated loan arranged by Barclays Capital in 2007, brokerage Dragon Capital said. Yet, debt owed by Ukrzaliznytsya, doesn’t contain so-called cross- default clauses that would force redemptions on loans guaranteed by the government, the brokerage said.

ECB President Jean-Claude Trichet said the bank will remove liquidity in order to ensure it doesn’t fuel inflation.

“Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said at a conference in Frankfurt. “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.”

Crude oil declined 1 percent as the dollar strengthened against the euro, reducing the appeal of commodities as an investment.

The extra yield investors demand to own developing nations’ bonds instead of U.S. Treasuries narrowed three basis points to 3.09 percentage points, according to JPMorgan Chase & Co.’s EMBI+.

Currencies

Emerging-market government’s attempts to stem currency gains will slow the appreciation and spark volatility, Morgan Stanley said in a report.

Brazil said Nov. 18 it would impose a tax to close a “distortion” caused by last month’s levy on foreign purchases of stocks and bonds aimed at curbing the real’s 34 percent gain this year against the dollar. South Korea, India, Indonesia and Kazakhstan also signaled this week they are considering measures to halt the appreciation of their currencies, which have slowed exports and threaten to undermine their economies. Taiwan’s financial regulator banned foreign investors on Nov. 10 from placing funds in time deposits to curb currency speculation.

“Attempts to curtail domestic currency appreciation will only serve to slow the pace of what we expect will be further eventual appreciation and in the process simply induce more volatility,” Morgan Stanley analyst Rashique Rahman wrote in a report today.

Russian Stocks

In Russia, Lukoil, the country’s largest non-state oil company, fell 1.2 percent. Rosneft, Russia’s biggest oil producer, declined 1.7 percent.

Aluminum Corp., or Chalco as the Chinese company is known, slid 1.7 percent to 15.33 yuan, trimming its gain this quarter to 20 percent. Jiangxi Copper Co., the country’s biggest producer, lost 1.5 percent to 42.23 yuan.

Industrial & Commercial Bank of China Ltd., the biggest lender, fell 1.3 percent to 5.48 yuan, paring its advance this month to 8.3 percent.

The MSCI Latin America Index advanced 0.2 percent. Brazil, the region’s biggest market, was shut for a national holiday.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

Last Updated: November 20, 2009 18:09 EST