Emerging Stocks Snap Nine-Day Rally on Europe Debt, China GDP

Emerging stocks fell, ending the longest winning streak since June 2010, after Moody’s Investors Service said France’s top credit rating is under pressure and China’s economy expanded at the slowest pace in two years.

The MSCI Emerging Markets Index fell 1.7 percent to 925.13 at the close of trading, following a nine-day, 13 percent surge. The Hang Seng China Enterprise Index of Chinese companies listed in Hong Kong sank 5.2 percent. India’s Sensex Index slid 1.6 percent and benchmark gauges fell in South Africa and Hungary. Stocks in Brazil and Mexico surged, helping pare the MSCI gauge’s earlier 2.7 percent drop.

Moody’s Investors Service cut Spain’s government bond ratings by two levels to A1 with a negative outlook after trading closed. It said yesterday France’s AAA credit rating is under threat from worsening debt metrics and the potential for additional liabilities from Europe’s crisis. China’s economy, the world’s second largest, grew by a lower-than-estimated 9.1 percent in the third quarter from a year earlier.

“Confidence in the ability of European policy makers to manage through the crisis successfully is pretty much at rock bottom,” Timothy Ash, the head of emerging-market research at Royal Bank of Scotland Group Plc in London, said in an e-mailed report. “The risk rally seems to have fizzled out for the time being, raising questions whether the past week has seen nothing more than a short squeeze than a more substantive change in market sentiment.”

European Bailout

The Guardian newspaper reported that France and Germany have reached an agreement to boost the European rescue fund to 2 trillion euros. A person with direct knowledge of the talks, however, said France and Germany have yet to agree on how to bolster the European bailout fund as they seek to overcome technical hurdles and to complete a plan to stem the debt crisis.

China’s gross domestic product gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and follows a 9.5 percent increase in the previous three months. Growth slowed as China’s central bank tightened its monetary policies to keep inflation in check.

Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, tumbled 6.1 percent in Hong Kong. The Shanghai Composite Index fell 2.3 percent, the most in almost a month.

Oil refiner Mol Nyrt. dropped 2.3 percent in Hungary while OTP Bank Nyrt, the nation’s largest second-largest lender, fell for a second day, sending the BUX Index down 0.4 percent.

Bovespa Rises

The Bovespa Index increased 2.1 percent to a one-month high as speculation mounted that policy makers will cut the nation’s interest rate tomorrow, boosting prices for companies that depend on domestic demand. Homebuilder MRV Engenharia & Participacoes SA advanced 4 percent.

The Brazilian real led gains among 25 emerging-market currencies tracked by Bloomberg, strengthening 1.1 percent versus the dollar. Mexico’s peso rose 0.8 percent and the rand appreciated 0.4 percent. The ruble weakened 0.8 percent versus the dollar.

Taiwan’s Taiex Index and South Korea’s Kospi Index each retreated 1.4 percent. The Jakarta Composite index fell 2.9 percent.

India’s Tata Consultancy Ltd. plunged 7.7 percent, the most since May 2009, after it reported second-quarter profit that missed analyst forecasts.

HTC Corp. dropped 4.7 percent in Taipei, the most in three weeks, after losing a ruling on patent claims against Apple Inc.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries retreated three basis points, or 0.03 percentage point, to 408, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps declined one basis point to 304, according to data provider CMA.

Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

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