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EMERGING MARKETS-Shares fall 1% on China slide; U.S. payrolls eyed

* China blue-chips fall nearly 3%

* Tightening worries, Xi’s rhetoric weigh

* EM share index set to lose 2% this week

* Currencies index hits 7-week low

* Investors may shun some EMFX on Fed tapering fears - poll

July 2 (Reuters) - A slump in Chinese shares sent an index of emerging market stocks 1% lower on Friday, on track for its biggest daily drop in seven weeks, while currencies lost ahead of U.S. jobs data which could give clues on when the Federal Reserve will tighten its policy.

Chinese blue-chips fell almost 3% in their worst day in four months, while the Shanghai Composite and Hong Kong shares lost almost 2% each on worries that with the Chinese Communist party’s centenary celebrations out of the way, monetary policy could be tightened.

Investors were also concerned about President Xi Jinping’s warning that any foreign powers attempting to bully China would “get their heads bashed”.

“Our base case does not envision a significant escalation in U.S.-China policy measures, but the underlying tensions between the two countries remain in place,” said strategists at UBS Global Wealth Management in a note.

The losses took an Asia-heavy index of EM shares down 1.1%, bringing weekly losses to nearly 2% - the worst since mid-May. The index extended declines for a fourth day amid concerns about global growth as COVID-19 continues to spread, with vaccinations proceeding at a slow pace in many emerging market countries.

“Ongoing struggles to contain the virus globally risk the emergence of new variants, and contribute to renewed uncertainty,” UBS strategists said, adding that investors should prepare for risks ahead, citing inflation, geopolitics and the coronavirus.

Later in the day U.S. data is expected to show non farm payrolls likely increased by 700,000 jobs last month following 559,000 additions in May. After the Fed last month opened talks on how to end its crisis-era massive bond-buying, the data might help gauge when it might start tapering, analysts said.

A Reuters poll showed that, in coming months, Fed tapering worries may see investors shun the currencies coined the “fragile five” of Brazil, India, Indonesia, Turkey and South Africa. But commodity prices are seen buoying some.

A perky dollar ahead of the data inflicted some pain on EM currencies with South Africa’s rand suffering the biggest losses, down 0.5% on the day and over 2% on the week.

China’s yuan and Turkey’s lira fell around 0.2% each, while Russia’s rouble edged lower as oil prices fell after OPEC+ postponed a meeting.

Washington late on Thursday placed Turkey on a list of countries that are implicated in the use of child soldiers over the past year, in a move that is likely to further complicate the already fraught ties between Ankara and Washington.

Emerging markets’ hard currency debt spreads are at their widest in two months, having added nearly 10 basis points since last Friday.

For GRAPHIC on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

Reporting by Susan Mathew in Bengaluru; Editing by Emelia Sithole-Matarise

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