Most Emerging Stocks Decline on Rates Concern; Currencies Gain

Most emerging-market stocks fell while currencies strengthened as concern increased that developing-nation central banks will tighten monetary policy to fight inflation.

Almost two stocks dropped for every one that advanced in the dollar-denominated MSCI Emerging Markets Index. The gauge fell 0.2 percent to 1,200.30 at 11:21 a.m. in New York. South Korea’s won appreciated 0.8 percent to the strongest level since August 2008, Russia’s ruble gained 0.6 percent and Malaysia’s ringgit increased for a seventh straight day.

China’s Shanghai Composite Index slumped 1.3 percent on speculation the government will boost interest rates as soon as next week, while India’s Bombay Stock Exchange Sensitive Index lost 0.8 percent as food inflation accelerated to a three-week high. Turkish stocks gained and bond yields rose after the central bank lifted its inflation forecast. The rally in developing-nation currencies was fueled by the Federal Reserve’s renewed pledge yesterday to keep U.S. interest rates near zero.

“Inflation and rising interest rates are the biggest challenges,” said Kishor Ostwal, managing director of CNI Research (India) Ltd., a publicly-traded equities research provider in Mumbai.

Shanghai Retreat

The MSCI emerging-market index has climbed 4.1 percent this year, trailing an 8 percent advance in the Standard & Poor’s 500 Index, as central banks in Brazil, Russia, China and India raised borrowing costs amid surging food and oil prices. The Dollar Index slid for an eighth day, the longest losing streak since March 2009.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries declined 1 basis point to 2.67 percentage points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Brazil’s Bovespa dropped 1.1 percent as the country’s central bank said that it will prolong its interest-rate adjustment cycle at a slower pace and Natura Cosmeticos SA, Brazil’s biggest cosmetics maker, reported profit that fell short of forecasts.

The Shanghai Composite slid to the lowest level in two months. China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, lost more than 1 percent as Credit Suisse Group AG said the central bank may boost borrowing costs on May 2, and Shenyin & Wanguo Securities Co. predicted the government may add to property price curbs.

“Investors will continue to monitor interest-rate increases in China on concern a slowdown can spill over into other markets,” said Paul Joseph Garcia, who helps manage about $14 billion at Manila-based BPI Asset Management Inc.

Inflation Concern

India’s Sensex index declined for a fourth day as DLF Ltd., the nation’s biggest developer, dropped 2.9 percent to a one- month low. An index measuring wholesale prices of agricultural products rose 8.76 percent in the week ended April 16 from a year earlier, the commerce ministry said in a statement in New Delhi today. The gain in the previous week was 8.74 percent.

Turkey’s ISE National 100 Index (XU100) rose 1 percent while yields on benchmark lira bonds increased 11 basis points to 8.34 percent, according to Royal Bank of Scotland Group Plc. The central bank raised its 2011 inflation forecast more than analysts estimated, to 6.9 percent from 5.9 percent. The bank’s official target rate is 5.5 percent.

Russia’s Micex Index gained 0.3 percent. The Czech PX Index rose 0.1 percent, while Hungary’s BUX Index advanced 0.7 percent.

To contact the reporters on this story: Ian C. Sayson in Manila at isayson@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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