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Asian bourses pull EM stocks lower

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South Africa heads to polls, stocks closed

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Polish flash CPI below estimates in May

By Sruthi Shankar

May 29 (Reuters) - Emerging market (EM) equities were on

track for their biggest percentage drop in more than a month on

Wednesday, and currencies slipped, as U.S. Treasury yields

climbed on concerns that the Federal Reserve will hold interest

rates higher for longer.

The MSCI index of EM stocks dropped 1.3%, set for

its biggest daily loss since April 19, with markets in Hong Kong

, South Korea and Taiwan among the biggest

losers.

U.S. Treasury yields touched multi-week highs on Tuesday,

after lacklustre debt auctions and stronger-than-expected

economic data dimmed hopes for U.S. rate cuts this year.

The yield on 10-year Treasury notes, a benchmark

for global borrowing costs, traded on Wednesday at a near

four-week high, in turn hurting risky emerging markets assets

and global stocks.

"We've seen quite a strong rally in EM currencies in last

like three or four weeks. So at the moment, they are quite

sensitive and maybe a little bit overbought," said Frantisek

Taborsky, EMEA FX&FI strategist at ING.

The South African rand edged up to a one-week high of

18.26 per dollar, while stock markets were closed on account of

the national election.

Opinion polls suggest the African National Congress (ANC)

will lose its parliamentary majority after 30 years in

government and is likely to make a deal with one or more smaller

parties.

The Polish zloty slipped against the euro after a

flash reading of consumer prices rose by a smaller-than-expected

2.50% on a year-on-year basis in May. Economists were expecting

a rise of 2.80%.

However, Polish central banker Henryk Wnorowski said the

likelihood that the Monetary Policy Council (MPC) will discuss

rate cuts this year is getting lower.

Other eastern European currencies including the Hungarian

forint and Czech crown slipped against the

euro.

The euro however dipped against the dollar after data showed

inflation in three German states inched up in May, suggesting

that national inflation may rise slightly although the picture

was mixed with a lower rate in one state.

Traders are pegging a 91% chance that the European Central

Bank will cut interest rates next week.

"There was quite a big rally in the euro versus dollar,

which helped general sentiment in the CEE space. The question is

how much more support we can get, but in general the ECB story

is positive for CEE currencies," said ING's Frantisek.

HIGHLIGHTS:

** AfDB aims to boost infrastructure funding as African

growth accelerates

** IMF upgrades China's 2024, 2025 GDP growth forecasts but

warns of risks ahead

** S&P revises outlook on India's sovereign rating to

positive from stable

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