LONDON, June 5 (Reuters) - Strong services sector data and firmer oil prices pushed emerging market equities to fresh two-year highs on Monday, but Qatar stocks and bonds sold off after four other Arab states accused it of supporting terrorism.
MSCI's benchmark emerging equity index rose 0.3 percent after strong services sector data from key markets such as China, India and Russia.
But Qatar stocks tumbled over 7 percent and the 2026 sovereign dollar bond fell 1.8 cents to its lowest since the end of March after Saudi Arabia, Egypt, the United Arab Emirates and Bahrain severed ties with Doha.
"You can certainly see a negative impact in the bond market, all the bonds are down 1-2 points along the curve and that is quite unusual. Qatar has always been seen as a safe haven," said Daniel Moreno, a portfolio manager at Rubrics Asset Management.
"It certainly raises a few questions, it certainly raises my eyebrows."
Credit rating agency Moody's said the regional rift could have a negative impact on Qatar if it disrupted trade and capital flows.
The country's five-year credit default swaps rose to a two-month high on the uncertainty, nudging up 2 basis points (bps) from Friday's close to 61 bps, according to IHS Markit data.
Away from the Middle East, emerging markets performed well, with gains across stock indices and currencies, helped by the positive data and the rise in oil prices.
Softer than expected U.S. non-farm payrolls data on Friday has also tempered Federal Reserve rate hike bets, pushing the dollar to seven-month lows and in turn helping emerging currencies higher.
"Pretty much every single currency in EM is up against the dollar this year at an average of about 5 percent," said Moreno.
"It's a trend that started last year and it's because the economic environment in the U.S. is not as strong as everybody anticipated and because Trump's policies will take a bit longer to come to fruition."
The Mexican peso jumped 1.7 percent to a one-week high after the ruling party narrowly fended off a leftist party in a key state election on Sunday, according to preliminary results.
China's yuan advanced after the central bank set its guidance at a near seven-month high and Chinese services sector activity expanded at the fastest pace in four months in May.
Russian dollar-denominated stocks rose 0.8 percent and the rouble firmed 0.2 percent after Russian services activity maintained strong growth.
Indian stocks also hit a fresh record high with India's services firms creating jobs at the fastest pace in nearly four years.
The Turkish lira firmed about 0.3 percent to its strongest since mid-December, after Turkey's annual consumer price inflation edged back from April's eight-year high to 11.72 percent in May.
The South African rand strengthened 0.8 percent to a one-week high after ratings agency S&P kept the country's sovereign rating unchanged on Friday in junk territory.
South Africa's private-sector activity was little changed in May from April, remaining in positive territory.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1018.87 +3.79 +0.37 +18.16
Czech Rep 0.00 +0.00 +0.00 -100.00
Poland 2285.28 -17.93 -0.78 +17.32
Hungary 35150.44 +387.98 +1.12 +9.83
Romania 8769.41 +80.91 +0.93 +23.77
Greece 786.57 +4.72 +0.60 +22.21
Russia 1052.48 +6.46 +0.62 -8.67
South Africa 46282.06 -240.47 -0.52 +5.42
Turkey 99025.43 +157.53 +0.16 +26.73
China 3091.53 -14.01 -0.45 -0.39
India 31323.84 +50.55 +0.16 +17.64
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.32 26.33 +0.04 +2.62
Poland 4.18 4.18 +0.16 +5.46
Hungary 307.24 307.17 -0.02 +0.51
Romania 4.56 4.56 +0.00 -0.64
Serbia 122.20 122.35 +0.12 +0.94
Russia 56.57 56.64 +0.12 +8.29
Kazakhstan 312.68 314.10 +0.45 +6.71
Ukraine 26.27 26.27 +0.00 +2.78
South Africa 12.69 12.80 +0.86 +8.23
Kenya 103.25 103.30 +0.05 -0.85
Israel 3.55 3.54 -0.01 +8.61
Turkey 3.50 3.51 +0.17 +0.69
China 6.80 6.81 +0.09 +2.07
India 64.32 64.40 +0.13 +5.64
Brazil 3.25 3.25 +0.04 +0.22
Mexico 18.35 18.68 +1.81 +12.89
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 320 -2 .06 7 89.96 1
Additional reporting by Marc Jones; Editing by Mark Potter