Tue Dec 16, 2014 5:05am EST
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(Adds comment, detail) By Karin Strohecker and Chris Vellacott Dec 16 (Reuters) - An aggressive overnight interest rate hike by Russia's central bank prompted a short-lived recovery in the rouble that quickly faded on Tuesday amid a broad emerging market selloff. The MSCI emerging stocks index traded 0.85 percent lower, on track for an eighth day in the red amid a wave of risk aversion after the Russian central bank raised rates by 650 basis points to ease pressure on the plummeting rouble. A surprise contraction in China's factory sector in December and a fall in Brent crude oil prices of more than $1 per barrel to below $60 for the first time since July 2009 further weighed on assets. < LCOc1> Commerzbank analyst Simon Quijano-Evans said investors were starting to worry about negative fallout from the lower oil price and the possibility that the pain suffered by Russia and other energy exporting countries could affect other economies. "The market needs to see oil prices stabilising. Then we can reassess the situation. It's risk off for the time being," he said. Moscow's rate hike failed to stop a selloff in Russian assets, with the dollar denominated RTS index shedding more than 8 percent before recovering slightly. It also failed to convince investors to stop dumping roubles and an early rally that had sent the Russian currency around 9 percent stronger against the dollar quickly faded. The dollar was 0.4 percent higher against the rouble at 66.2 roubles per dollar by 0950 GMT. Analysts called the interest rate move a "step in the right direction" but stressed markets were looking for more action, such as a big market intervention. "The central bank needs to build up credibility, which means more assertive action just to calm down the rouble volatility and get on top of things again," Quijano-Evans said. Russian dollar bond spreads over U.S. Treasuries widened again by 7 basis points to 673 basis points on Tuesday after crossing the psychologically critical 600 basis-point level on Monday. Russia's woes have added to the growing unpopularity of emerging markets as a rising dollar draws capital towards U.S. assets with the lure of better returns. The currencies of countries seen as particularly vulnerable, such as Turkey, Thailand and Indonesia, have seen heavy selling recently and policymakers have started to consider taking action. The Indonesian rupiah saw a small gain of 0.2 percent against the dollar on Tuesday but the currency has slumped to levels last seen in the 1998 Asian financial crisis. The Indonesian government said on Tuesday it would buy government bonds back from the secondary market if needed as the rupiah slumps and government bond yields soar on the flight of capital from the country. The Turkish lira was trading 0.16 percent stronger against the dollar, having fallen to a record low on Monday. Earlier Turkish Economy Minister Nihat Zeybekci said he did not believe the lira required "strong intervention". For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s For CENTRAL EUROPE market report, see For TURKISH market report, see For RUSSIAN market report, see ) (Reporting by Karin Strohecker) - Tweet this
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UPDATE 1-EMERGING MARKETS-Recovery on Russia rate hike short-lived amid emerging market selloff
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