* MSCI EM stocks index at two-week high
* Lira sits out EMFX rally; a cenbank deputy gov replaced
* Belarus to face EU sanctions
* Hunagry cenbank interest rate decision eyed
May 25 (Reuters) - Stocks of emerging markets hit a two-week high on Tuesday, as global inflation fears receded, while Belarusian bonds extended decline in the face of fresh sanctions from the European Union after the forced landing of a flight to arrest a dissident.
Currencies of developing economies strengthened as dovish comments from the U.S. Federal Reserve kept the dollar pressured.
In offshore trade, China's yuan strengthened past 6.4 per dollar for the first time since June 2018. South Africa's rand strengthened around 0.4% to scale near two-year highs, while Russia's rouble hit its highest in more than two months.
The Turkish lira and the Belarusian rouble sat out the rally.
The lira weakened 0.2% after a deputy central bank governor was replaced, two months following President Tayyip Erdogan’s move to fire hawkish chief Naci Agbal - a move that prompted the lira to dive almost 15% since then.
The unit had gained over 17% from November when Naci Agbal was appointed and until his replacement in March.
In Belarus, 2030 Eurobond bonds slid , while the rouble was set for its worst day in a week against a stronger euro.
European Union leaders agreed on Monday to impose more sanctions on Belarus, including economic ones, called on their airlines to avoid Belarusian airspace and authorised work to ban Belarusian airlines from European skies and airports.
“The fall in Belarusian bonds are contained to an extent as investors pulled out of them over the last year given the political tension,” Trieu Pham, emerging market debt strategist at ING, said referring to an uproar against the re-election of Belarusian leader Alexander Lukashenko last year that had hammered Belarusian assets.
On the equities front, MSCI’s index of emerging market shares rose to two-week highs.
China’s blue-chip stock index added 3%, rising its most in a day since July 2020. Chinese state planner said it would strengthen price controls of key commodities in the next five years, a move seen as bringing relief to producers struggling with factory inflation.
South Africa’s benchmark jumped 1%, while Russia’s MOEX rose for a fourth straight session.
Ahead of an interest rate decision in Hungary, the forint currency retreated from an eight-month high. The central bank is expected to hold rates ahead of its June meeting where it could deliver its first base rate hike in nearly a decade to rein in growing inflationary pressure.
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Reporting by Susan Mathew in Bengaluru; Editing by Sherry Jacob-Phillips