LONDON, July 13 (Reuters) - Emerging equities surged to 26-month highs on Thursday, currencies strengthened and bond issuers rushed to take advantage of the risk appetite bounce sparked by dovish comments from U.S. Federal Reserve Chair Janet Yellen.
The dollar retreated to nine-month lows, battered by Yellen saying the U.S. economy was healthy enough to withstand higher rates but low inflation meant interest rates may not rise "all that much further". Ten-year U.S. yields eased to 10-day lows around 2.31 percent.
"As long as U.S. interest rates consolidate and fears about a move to well north of 2.5 percent remain in check, the positive tone in emerging markets that prevailed prior to mid-June should resume," Societe Generale analyst Jason Daw said.
There was also reassurance from within emerging markets as Chinese exports and imports rose at a double-digit pace, pointing to the continued trade recovery.
MSCI's emerging equity index rose almost 1 percent and was set for its best weekly gain since mid-March, with bourses in India and Korea hitting record highs and Hong Kong shares rallying more than 1 percent to two-year peaks .
JPMorgan's ELMI Plus index, a proxy for emerging currencies, closed on Thursday at the highest in a month.
Currencies firmed almost across the board, with South Africa's rand, having posted its best daily gain on Thursday since April of 2.5 percent, firmed a further 0.3 percent.
Turkey's lira, which along with the rand is most vulnerable to higher U.S. rates, rose 0.25 percent to a one-week high . However, bulls were checked by data showing Turkey's current account gap widened to $5.24 billion in May, up from $3.1 billion a year earlier and significantly exceeding forecasts.
Russia's rouble meanwhile tracked a slump in oil prices to slip 0.4 percent, though Russian shares struggled higher to six-week highs.
Morgan Stanley noted that of 64 local debt markets it tracked, only one had ended Thursday with negative returns.
"This rally should extend from here, supporting our view that central banks leaning against financial conditions...may slow the risk rally, but not derail it," Morgan Stanley added.
On external debt, sovereign emerging debt yield premia to Treasuries slipped to 10-day lows. Emerging primary bond markets were also buoyant, with Indonesia's 10- 30-year dollar bonds strongly oversubscribed. It also sold a one billion-euro issue.
Russia's Gazprom was marketing a Swiss franc bond, while Russian lender Alfabank is hoping to issue a euro-rouble deal, despite concerns about oil prices.
Friday is the deadline for creditors of the International Bank of Azerbaijan to vote on debt restructuring terms. Results will be announced on July 18 but the bank says investors holding 87 percent of the debt have agreed to support it.
Elsewhere, Brazil's real was flat after Thursday's 1.5 percent jump. The gains, which also encompassed sovereign Eurobonds, were partly due to a 10-year sentence handed to left-wing ex-President Luis Ignacio Lula da Silva. The corruption conviction may prevent him contesting next year's election.
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For TURKISH market report, see
For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1039.53 +9.63 +0.94 +20.56
Czech Rep 1000.50 +1.29 +0.13 +8.56
Poland 2341.55 +0.01 +0.02 +20.21
Hungary 35852.28 -20.18 -0.06 +12.03
Romania 8173.69 +1.73 +0.02 +15.37
Greece 847.51 +4.29 +0.51 +31.67
Russia 1023.06 -2.62 -0.26 -11.22
South Africa 46915.52 +241.17 +0.52 +6.86
Turkey 03909.87 +100.10 +0.10 +32.98
China 3219.04 +21.49 +0.67 +3.72
India 32063.72 +258.90 +0.81 +20.42
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.12 26.11 -0.07 +3.38
Poland 4.23 4.23 -0.11 +4.04
Hungary 307.34 306.84 -0.16 +0.48
Romania 4.56 4.56 -0.04 -0.61
Serbia 120.00 119.95 -0.04 +2.79
Russia 60.21 59.92 -0.48 +1.76
Kazakhstan 327.90 328.86 +0.29 +1.75
Ukraine 25.95 25.90 -0.19 +4.05
South Africa 13.20 13.25 +0.38 +4.01
Kenya 103.85 103.90 +0.05 -1.43
Israel 3.53 3.54 +0.10 +8.97
Turkey 3.57 3.57 -0.23 -1.33
China 6.78 6.79 +0.09 +2.40
India 64.46 64.45 -0.01 +5.41
Brazil 3.21 3.21 -0.03 +1.40
Mexico 17.76 17.78 +0.10 +16.63
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 328 1 .02 7 84.91 1
All data taken from Reuters at 08:39 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT. (Editing by Toby Chopra)