* Emerging stocks set for best day and week since March 2016
* Chinese stocks and yuan power other EM assets higher
* Turkish lira firms 1 pct, trades around 12-week high
By Aaron Saldanha
Nov 2 (Reuters) - Emerging market stocks roared higher on Friday, on track for their best week in 2-1/2 years, and currencies strengthened as hopes that tension was easing in the U.S.-China trade war fuelled risk appetite.
The latest gains follow a report that U.S. President Donald Trump had asked U.S. officials to begin drafting a possible trade deal with China..
On Thursday, Trump said trade discussions with Beijing were "moving along nicely", and that he planned to meet his Chinese counterpart, Xi Jinping, on the sidelines of the G20 summit.
China's yuan strengthened in onshore trading to its firmest level in three weeks and was on track to record its first weekly gain in five.
"The rhetoric from President Trump has shifted for sure and hope may well now be sustained through to the G20 gathering at the end of November," Derek Halpenny at MUFG wrote in a note to clients. "President Xi has also made positive comments and of course expectations of additional stimulus in China are adding to optimism."
Currencies elsewhere also painted an upbeat picture against a tepid dollar, with Mexico's peso, a weather vane for trade sentiment, jumping 1.2 percent.
MSCI emerging market currencies index hit its highest level in more than two months and looked poised for a more than 1 percent jump over the week.
Turkey's lira, which has weakened more than 30 percent since the start of the year, firmed about 1 percent on Friday to trade around a 12-week high.
It also found support from a report that the U.S. would provide eight countries with waivers from sanctions on dealing with Iran.
While it was not clear if Turkey would receive such a waiver, the net oil importer stands to benefit significantly if allowed to import oil from its neighbour.
But it was emerging stocks that took the limelight. The MSCI index of developing world stocks jumped 2.9 percent - on track for its best session since March 2016 and a 6.4 percent rise over the week.
Index heavyweight China saw onshore equities soar 2.7 percent while Hong Kong enjoyed its best gains in seven years.
South African blue-chip stocks were up 2.8 percent while the rand was 0.9 percent firmer on hopes that trade ties between the world's top two economies would improve.
"We saw South Africa's unexpected trade deficit earlier on in the week -- that seems to be directly related to this ongoing trade war," said Shaun Murison, a senior market analyst with IG Markets.
In central Europe, yields on local Czech Republic bonds across the two-, five- and 10-year maturities rose with the central bank cutting its forecast for the 2018 state fiscal surplus and raising its debt forecast.
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For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see (Reporting by Aaron Saldanha and Agamoni Ghosh in Bengaluru; Editing by Kevin Liffey)