By Natsuko Waki
LONDON, Feb 25 (Reuters) - Turkey's lira hit two-week lows versus the dollar on Tuesday while stocks fell 3 percent after the latest twist in a government corruption scandal, while concerns about Chinese yuan moves weighed on other emerging assets.
Ukraine's hryvnia sank to a fresh five-year low but its sovereign dollar bonds held most of Monday's huge gains as hopes grew the country would receive Western aid, including from the IMF, which promotes greater exchange rate flexibility.
Voice recordings were posted on YouTube late on Monday purportedly of Turkish Prime Minister Tayyip Erdogan telling his son to dispose of large sums of money on the day news broke of a graft inquiry into his government.
The incident comes at a sensitive time for Erdogan, whose AK Party officially began campaigning for March local elections Erdogan's office said the recordings were fake.
And external conditions are not supportive for Turkey either as the Federal Reserve plans to reduce its monetary stimulus, in the so-called tapering process.
"In Turkey you have the tapering worries but you also have a layer of political risk on top. In a sense what's happening today is a continuation of themes that have been running for a while," said HSBC emerging equity strategy head John Lomax.
The lira fell 0.6 percent to 2.2096 per dollar while local stocks fell more than 3 percent at one point. Turkey's benchmark two-year government bond fell a third of a percent in price, pushing yields to 10.95 percent.
China's yuan fell beyond the official midpoint rate for the first time since September 2012.
The moves are linked to Beijing's plans to usher in more reforms including lending curbs and a widening of the currency band to 2 percent or more from 1 percent.
Such reforms may be announced at next week's National People's Congress meeting.
"China is preparing to widen the daily trading band and they are trying to prepare the market by increasing two way volatility in the exchange rate," said Flemming Nielsen, analyst at Danske Bank in Copenhagen.
"As we have seen, the two major drivers for emerging markets have been Fed tapering and slower growth in China. It is difficult to call the bottom for emerging markets as long as we cant call a bottom in China."
The broader benchmark MSCI emerging index fell 0.1 percent, weighed down by China's CSI300 share index which fell 2.6 percent.
The yuan was trading at 6.1247, much softer than the midpoint which was set at 6.1184.
The hryvnia fell more than 3 percent to 9.4460 per dollar , as focus turning to whether the country will get aid from donors including the IMF.
A floating hryvnia was a key pre-condition the IMF sought to renew its loan package to Ukraine last year.
Ukraine's sovereign dollar bonds maturing in 2014 and from 2017 all the way to 2023 all fell around 1 cent to the dollar, having rallied up to 10 points on Monday.
Ukraine's stocks rallied 3 percent to a fresh 1-1/2 year high at one point but later slipped back, after soaring 15 percent on Monday. Ukraine is the best performer in MSCI frontier equity index.
Forward currency markets are pricing in the hryvnia trading at 10.47 in six months, a depreciation of nearly 10 percent from current levels.
In Russia, nervousness over Ukraine weighed on the rouble and stocks
"There's a correction of the strongly overbought Chinese Yuan, plus uncertainty in the situation with Ukraine - these factors negatively influence the rouble," said Denis Korshilov, head of markets at Citibank Russia.
Elsewhere, Nigeria's naira rose 0.7 percent to 164.50 per dollar while local stocks rose over 1 percent , recovering from a sell-off following the suspension of the central bank governor.
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