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EMERGING MARKETS-Indonesia stocks fall 2% on virus surge, yields hit 2-mth high

    * Indonesia shares track worst day since May 19
    * Bank of Japan keeps monetary policy steady
    * Graphic: World FX rates tmsnrt.rs/2RBWI5E
    * Asian stock markets: tmsnrt.rs/2zpUAr4

    By Shashwat Awasthi
    June 18 (Reuters) - Indonesian stocks slid nearly 2% and the
rupiah weakened on Friday as surging COVID-19 cases sapped risk
appetite and squashed hopes that the central bank's
accommodative stance would allow equity markets to recover.
    South Korea's won fell for the fifth consecutive
day in its worst week since March 2020, while other regional
currencies were mixed, as investors further digested the U.S.
Federal Reserve's hawkish signals this week.
    Jakarta's equity index shed as much as 1.9% and was
set for its first weekly drop in four after Indonesia on
Thursday reported its biggest daily rise in coronavirus cases
since late-January.
    Yields on Indonesia's 10-year benchmark bonds
climbed 8.5 basis points to a two-month high.
    "New COVID-19 infections are rising rapidly again...
Hospital occupancy rates have surpassed 75% in the capital,
Jakarta, raising the prospect that restrictions will need to be
tightened," said Gareth Leather, senior Asia economist at
Capital Economics.
    The rupiah weakened for the fifth straight session
and was on track to lose 1% this week as Bank Indonesia's dovish
stance and the Fed's indication of raising rates earlier than
expected heaped pressure on the currency.
    Further complicating matters was news that hundreds of
doctors and medical workers in Indonesia had been infected
despite being inoculated, while analysts have also highlighted
the slow pace of vaccinations.
    
    
    The U.S. Fed's sudden turn on Wednesday prompted Morgan
Stanley analysts to recommend cashing out of long positions in
many Asian currencies, including the rupiah and the Malaysian
ringgit, as their appeal for carry trade was dented.
    "The most important reason why we have been recommending
carry trades in Asia was a patient/dovish Fed... Now the
conditions have changed materially on the back of a hawkish
surprise from the Fed," they said in a note.
    Riskier currencies, such as those of emerging markets,
thrive on U.S. interest rates remaining low because they benefit
from the interest rate differential that increases their appeal
for carry trade.
    Philippine shares continued to unwind some of the
more than 11% gain accumulated in recent weeks and fell half a
percent.
    
    HIGHLIGHTS
    ** Top losers on the Jakarta stock index include Prima
Globalindo Logistik down 8.5%, MegaPower Makmur
 and Bank IBK Indonesia down 7%.
    ** In the Philippines, top losers are BDO Unibank
down 2.8%, LT Group down 2.7%, and SM Prime Holdings
 down 2.6%.
    
    
   Asia stock indexes and currencies at 0615 GMT                                  
   COUNTRY      FX RIC    FX DAILY %   FX YTD %     INDEX   STOCKS DAILY %  STOCKS YTD %
    Japan                   +0.11        -6.21                  -0.06           5.67
    China                   +0.07        +1.30                  -0.12           1.39
    India                   -0.10        -1.47                  -0.75          11.38
  Indonesia                 -0.07        -2.23                  -1.82          -0.35
  Malaysia                  -0.10        -2.95                   0.13          -3.34
 Philippines                +0.14        -0.72                  -0.53          -4.04
   S.Korea                  -0.12        -4.03                   0.26          13.92
  Singapore                 +0.08        -1.52                  -0.20          10.13
   Taiwan                   -0.08        +2.51                  -0.41          17.55
  Thailand                  +0.10        -4.49                  -0.75          10.77
 
    
 (Reporting by Shashwat Awasthi in Bengaluru; Editing by Sujata
Rao and Shailesh Kuber)
  
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