* Turkish stocks at record high, lira outpaces peers
* Polish c.bank meeting on tap
* Possible dollar strength keeps FX markets on edge
Jan 13 (Reuters) - Emerging market stocks were on the cusp of a record high on Wednesday, while currency markets remained wary of more dollar strength, despite an overnight drop in U.S. Treasury yields and the greenback.
MSCI’s index of emerging market stocks rose 0.6%, trading about three points below a record high hit on Monday. Low lending rates and the prospect of more stimulus measures have seen equities offering relatively high returns among risk-driven assets.
In Europe, the Middle East, and Africa, Turkish stocks raced 1% higher to a record high after Turkey’s industrial output in November jumped more than expected.
Turkey’s lira also outpaced its EMEA peers, adding as much as 0.6%. Most other currencies marked small moves, after posting a strong recovery late-Tuesday.
Russian and South African stocks held slightly below record highs.
The dollar-sensitive South African rand was muted after marking its best day in more than four months, while Russia’s rouble ticked lower after its best session in two months.
In Russia, investors were also watching for government bond auctions later in the day.
Central European currencies were muted to the euro after marking strong gains on Tuesday.
The dollar fell on Tuesday, cutting short its rebound from 2018 lows as Treasury yields retreated on traders covering short positions.
Investors are now watching for U.S. inflation data later in the day.
Expectations of increased U.S. debt issuance pushing up Treasury yields has dampened the outlook for emerging market currencies, even as they marked immediate gains on dollar weakness. It has also made investors wary of capital flows out of emerging markets.
Investors have also begun pricing in a U.S. interest rate hike by late-2022.
“Even if the first Fed rate hike is a long way off, the U.S. administration’s further aid payments are likely to fuel the economic recovery in the U.S. and thus (the) recent speculation that the U.S. central bank might reduce its asset purchases as early as year-end 2021,” You-Na Park-Heger, FX and EM analyst at Commerzbank wrote in a note.
The Polish zloty dipped to the euro ahead of a central bank meeting later in the day. The bank is expected to hold interest rates at near-zero, but has indicated that future cuts could be a possibility, depending on inflation levels.
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For CENTRAL EUROPE market report, see
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For RUSSIAN market report, see (Reporting by Ambar Warrick in Bengaluru; Editing by Ramakrishnan M.)