* MSCI EM stocks down 0.3%, FX steady

* Citi lowers South Korea rating to 'neutral'

* China keeps benchmark lending rate unchanged

* Interest rate decisions across EM in spotlight this week

* Fitch affirms ratings on Turkey and Kenya

By Utkarsh Hathi and Johann M Cherian

July 20 (Reuters) - An index tracking emerging market stocks

hit a more than two-month low on Monday as U.S.-Iran hostilities

escalated in the Middle East, while most currencies were flat to

lower against a steady dollar.

Tensions in the Gulf region intensified over the weekend as

U.S. and Iran exchanged more strikes, while Iran said on Monday

that two oil tankers had exploded and been immobilised after

attempting to transit through the Strait of Hormuz - a

critical global oil shipping route.

Brent crude oil futures hovered at around $80 a

barrel, after rising to levels it hit in March at the height of

the conflict. The contract had gained to as much as $91.4 per

barrel early in the session.

"While oil costs are rapidly being passed to consumers, the

response is to cut monthly savings rather than non-oil

consumption. This cannot be sustained indefinitely if oil prices

remain elevated," analysts at UBS said in a note.

MSCI's global EM stocks index edged 0.3% lower and

was at a more than two-month low, while the currencies gauge

was flat against the U.S. dollar.

Uncertainties over the outlook for AI continued to weigh on

Asian markets as investors weighed the outlook for the trade,

with daily moves exacerbated by leveraged bets on semiconductor

companies. Tech-heavy equity benchmarks in South Korea

and Taiwan lost 4.5% and 0.5%, respectively.

Unprecedented volatility in South Korean equities prompted

downgrades from brokerage Citi and by Yardeni Research.

In contrast with broader emerging markets, MSCI's index

tracking Central and Eastern Europe was up

nearly 1%, with Polish and Hungarian benchmarks up

0.8% and 0.6%, respectively.

Hungary's forint firmed 0.6%, finding its footing

after hitting a more than two-month low in the previous session,

while Poland's zloty inched up 0.2%, pinned near its

lowest since November 2024.

Interest rate cut expectations have buoyed Polish stocks,

while the zloty is the worst performer among regional peers.

Hungarian assets are among the best performers in the

region, as investors anticipated reforms following the Tisza

party's win in elections earlier this year.

Energy-laden Romanian equities have soared nearly

42% as the sector benefited from higher crude prices.

Traders are looking forward to a slew of interest rate

decisions out of emerging markets this week.

China kept its benchmark lending rates unchanged for a 14th

consecutive month on Monday, in line with market expectations.

South Africa's rand was up 0.1%. June inflation data

on Tuesday could offer clues on the central bank's monetary

policy verdict anticipated later this week. Rate decisions are

also anticipated out of Nigeria and Hungary later this week.

Meanwhile, ratings agency Fitch affirmed its rating on oil

importers Turkey at "BB-" and Kenya at "B-" on Friday, against

the back of surging energy costs that have ballooned import

bills.

(Reporting by Utkarsh Hathi and Johann M Cherian in Bengaluru;

Editing by Mrigank Dhaniwala)