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China unexpectedly leaves lending rates steady

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Sri Lanka dollar bonds slip ahead of Saturday election

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India, Pakistan stocks touch record highs

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Stocks up 0.7%, FX flat after touching record high

By Ankika Biswas

Sept 20 (Reuters) - Emerging market stocks and

currencies were set for their biggest advance in around five

weeks, buoyed by enthusiasm around a wider-than-usual interest

rate cut by the U.S. Federal Reserve that prompted an investor

rush towards risk assets.

The MSCI index for EM stocks rose 0.7% to touch a

near one-month high during the day, set for its steepest weekly

gain since Aug. 12.

The currencies index hit a record high

before turning flat, but was still poised for an eighth straight

weekly gain and its best weekly performance since Aug. 19.

Boosting risk appetite globally, the U.S. central bank

kicked off an anticipated series of rate cuts with a

half-percentage-point reduction on Wednesday, with policymakers

projecting another 50-basis-point cut by year-end.

"An aggressive start to the Fed-cutting cycle has raised the

likelihood of a soft landing in the mind of the market. While

Citi economics disagrees, for now markets are unlikely to fight

the Fed," Citi analysts noted.

"We remain long the European periphery and replace our UK

duration with an EM duration overweight. This leaves us long the

high yielding EMFX as our key FX position."

As for equities, China stocks traded subdued after benchmark

lending rates were unexpectedly kept unchanged, but the main

indexes logged weekly gains as the U.S. rate

cut strengthened bets that Beijing will soon unveil fresh

stimulus.

Meanwhile, China's yuan touched a 16-month high.

On the flip side, benchmark share indexes in Pakistan

and India hit record highs on the day.

The South African rand weakened against the

greenback after a seven-day winning streak that came on the back

of interest rate cuts by the Fed and the South African Reserve

Bank, plus a local inflation print.

Sri Lanka's sovereign dollar bonds slipped more than 1 cent,

on their last day of trading before the country's tightly fought

presidential election.

The week was also marked by a slew of EM central bank policy

decisions, with Brazil raising its benchmark interest rate by 25

basis points, diverging from the U.S. and other Latin American

countries.

The day also saw the Bank of Japan keep interest rates

steady and signal its confidence a solid economic recovery would

allow for higher interest rates in coming months.

HIGHLIGHTS:

** Egypt PM says Saudi's planned $5 bln investment

independent of cenbank deposit

** Philippine central bank cuts banks' reserve requirement

ratios from Oct 25

** Thai cbank chief says no need for rate cut now as

government pushes for easing