June 23 (Bloomberg) -- Developing-nation stocks fell for a second day, sending the MSCI Emerging-Markets Index down more than 10 percent from its 2009 high, amid concern the global recession will persist.

The 22-country benchmark index dropped 1.7 percent to 723.72 as of 4:57 p.m. in New York. It slid as much as 2.4 percent earlier, bringing its losses since June 1 to 10 percent and marking the first so-called correction since emerging-market stocks began rallying almost four months ago. Dubai’s Financial Market General Index sank 5.9 percent. In Latin America,

The MSCI index had surged 55 percent from February through May, a record three-month advance, on speculation interest-rate cuts and stimulus packages from China to Brazil would spark a recovery in economic growth. The shares reversed direction this month after prices climbed to the highest level relative to earnings since December 2007 and lower commodities hurt the profit outlook for raw-materials producers.

“The recovery has been overdone,” Beat Lenherr, chief global strategist at LGT Capital Management, which oversees about $16 billion, said in a Bloomberg Television interview in Singapore. “The big misconception is that the emerging markets are going to lead the global recovery.”

The World Bank said yesterday the first global recession since World War II will be deeper than it predicted in March, fueling speculation the gains in equities outpaced prospects for a rebound in growth. The MSCI gauge was valued at 15.4 times reported profits at its peak this year, according to data compiled by Bloomberg. It closed yesterday at 14.5 times.

‘Shaky’ Markets

Stocks “priced in too much recovery” for the economy, said Gyula Toth, an emerging-market strategist at UniCredit SpA in Vienna. “We are still in a general correction phase and the market is going to be relatively shaky today.”

Reduced capital inflows from exports, remittances and foreign direct investment means “increasingly grave economic prospects” for developing nations, the Washington-based World Bank said yesterday. After peaking at $1.2 trillion in 2007, inflows this year may fall to $363 billion, it said.

More than $30 billion of inflows into emerging-market equity funds the past three months helped fuel the MSCI index’s rally, according to data compiled by Cambridge, Massachusetts- based EPFR Global. The funds attracted $1.2 billion in the week ended June 17, about half the average inflows in the past 12 weeks, according to ING Groep NV.

Russia’s Micex Index, which entered a bear market yesterday after sinking more than 20 percent from its high, fell 2.2 percent today.

Brazil, Mexico

In Latin America, Mexico’s Bolsa Index erased earlier declines, gaining 0.8 percent, while Brazil’s Bovespa rebounded 0.6 percent.

Brazilian and Mexican stock-indexes breached their so- called 50-day moving average for the first time yesterday since the three-month rally began, signaling further declines, according to Citigroup Inc.

“Overall, regional markets are now in full correction mode,” Geoffrey Dennis and Jason Press, New York-based Latin American equity strategists, wrote in a note to clients. “This sort of correction was long overdue.”

Emerging-market bonds slumped for a second day, pushing the extra yield investors demand to own the securities instead of U.S. Treasuries wider by eight basis points, or 0.08 percentage point, to 4.65 percentage point, according to JPMorgan Chase & Co.

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Lester Pimentel at lpimentel1@bloomberg.net

Last Updated: June 23, 2009 17:55 EDT