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Most Emerging Stocks Drop as Spain Revives European Debt Concern

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April 5 (Bloomberg) -- Most emerging-market stocks fell as Spanish bonds slid after weak demand at an auction renewed concerns Europe won’t contain its debt crisis.

The MSCI Emerging Markets Index was little changed at 1037.26, with 376 stocks falling and 274 rising out of 819 members. Taiwan Semiconductor Manufacturing Company Ltd., the world’s largest contract maker of chips, lost the most in three weeks, while Turkiye Garanti Bankasi AS, Turkey’s largest bank by market value, fell the most in a month. Banco Santander Brasil SA fell to the lowest since Jan. 17.

Spanish bonds fell for a third day after Prime Minister Mariano Rajoy said the nation is in “extreme difficulty.” Spain struggled to borrow in financial markets yesterday, selling 2.6 billion euros ($3.4 billion) of bonds at an auction, an amount that was near the bottom of a range set by the nation’s Treasury for the sale. Taiwanese stocks slumped on concern the island will introduce a tax on share transactions to address social inequalities and to raise revenues.

“We are not really going to get a sustainable rally,” said Nicholas Field, who helps oversee $21 billion of emerging market assets in London at Schroders Plc. For emerging-market stocks to advance, “you need real confidence in a sustained Europe recovery, which we don’t’ have.”

The yield on Spain’s 10-year bonds climbed seven basis points, or 0.07 percentage point, to 5.76 percent, the most since Dec. 12. The MSCI EM Financials Index, a gauge of emerging-market bank shares, retreated 0.5 percent on concern that the European financial turmoil may cut the funding to developing countries.

Banco do Brasil

Turkey’s Turkiye Garanti fell 2.5 percent. Banco Santander dropped 3.6 percent after Banco do Brasil, Latin America’s largest bank, said it will cut interest rates and increase credit limits for clients. Brazil’s Bovespa benchmark index gained 0.3 percent after a report showed annual inflation declined to a 17-month low last month. MRV Engenharia & Participacoes SA, Brazil’s fourth-biggest homebuilder by revenue, rose 3.7 percent after the statistics agency said inflation slowed to 5.24 percent from 5.85 percent in February.

Mexico’s markets are closed today for the Good Friday holiday.

The IShares MSCI Emerging Markets Index exchange-traded fund, the most-traded ETF to track developing-nation shares, rose 0.5 percent to $42.74. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a gauge of options prices on the fund and expectations of price swings, fell 1 percent to 26.33.

Currencies Weaken

The Mexican peso and the Polish zloty led a drop of emerging-market currencies. Both the peso and zloty lost 0.7 percent versus the dollar. The Brazilian real rose 0.2 percent, paring its losses in the past month to 4.6 percent.

Taiwan’s Taiex Index has slumped 5 percent since the Economic Daily reported on March 29 that the government was evaluating the transaction-tax proposal. Taiwan Semiconductor dropped 2.2 percent to NT$83.10.

The Shanghai Composite Index of Chinese stocks rose 1.7 percent after the government said on April 3 it will more than double the amount foreigners can invest in equities, bonds and bank deposits. The China Securities Regulatory Commission increased quotas for qualified foreign institutional investors to $80 billion from $30 billion.

Industrial & Commercial Bank of China Ltd., the country’s biggest lender, lost 1.7 percent in Shanghai, as Premier Wen Jiabao said the nation needs to break a banking monopoly of a few big lenders that make easy profits because it’s hard to borrow money elsewhere.

The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong fell 1.1 percent, after returning from yesterday’s public holiday. Markets in India and the Philippines were shut for holidays.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries jumped five basis points, or 0.05 percentage point, to 346, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Jason Webb in London at jwebb25@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

To contact the editors responsible for this story: Emma O’Brien at eobrien6@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net

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