LONDON, Sept 12 (Reuters) - A slightly firmer dollar kept emerging markets in check on Tuesday, with China's yuan retreating for the third day in a row, though emerging stocks managed to scale fresh three-year peaks.
With Hurricane Irma now downgraded to a tropical storm and no further warlike rhetoric or action from nuclear-armed North Korea, the dollar firmed slightly, even though markets see slim chances of another U.S. interest rate rise this year.
That is keeping alive appetite for emerging assets, pushing MSCI's equity index 0.3 percent higher and emerging dollar bonds' premium over U.S. Treasuries to the lowest in nearly three years.
Currencies on the other hand were mostly weaker versus the dollar, led by the yuan which slipped below the psychologically key 6.5-per-dollar mark in the wake of a relaxation of controls on capital outflows.
Official guidance on the currency weakened for the first time in 12 days, raising questions over whether the renminbi would continue the trend that has seen it firm more than 6 percent this year and almost 3 percent since early-August.
As a result of the gyrations, implied volatility on the yuan - a measure of expected swings in the currency - has surged to the highest since February.
JPMorgan analysts noted Beijing's recent moves such as scrapping a 20 percent reserve requirement for financial institutions settling forward yuan positions.
"Taken together, these developments suggest concern around the pace of yuan appreciation and an attempt to bring more balance to the dollar/yuan market. As such, our suite of valuation models suggest the currency is not cheap at all," they wrote.
They also noted that a fall in hedging costs as a result of the new rules could "attract some investors to hedge via buying onshore dollar/yuan forwards".
Most other emerging currencies also weakened, with the Turkish lira the biggest loser, shedding 0.7 percent.
The lira touched nine-month highs on Monday after data showing robust economic growth, but was hurt by a government official demanding intervention to temper its strength. Politics may also be a headwind, with Germany suspending arms exports to Turkey due to deteriorating human rights.
The rouble also eased 0.3 percent ahead of Friday's central bank meeting that is likely to yield a 25-50 basis-point rate cut.
The rand bucked the weaker trend, rallying 0.3 percent . South Africa is benefiting from firm gold prices, strong Chinese growth and falling inflation while some analysts said the rand was also being lifted by the effect of Vodafone selling its stake in local subsidiary Vodacom.
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For TURKISH market report, see
For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1101.59 +2.41 +0.22 +27.75
Czech Rep 1032.58 +9.15 +0.89 +12.04
Poland 2525.12 +11.68 +0.46 +29.63
Hungary 38067.35 +171.50 +0.45 +18.95
Romania 8057.59 -1.13 -0.01 +13.73
Greece 809.21 +3.15 +0.39 +25.72
Russia 1123.31 -3.43 -0.30 -2.52
South Africa 49895.41 +267.87 +0.54 +13.65
Turkey 08990.47 -467.54 -0.43 +39.48
China 3380.29 +3.87 +0.11 +8.91
India 32074.81 +192.65 +0.60 +20.46
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.09 26.08 -0.05 +3.52
Poland 4.25 4.24 -0.11 +3.66
Hungary 306.78 306.33 -0.15 +0.66
Romania 4.60 4.59 -0.07 -1.36
Serbia 119.24 119.33 +0.08 +3.45
Russia 57.42 57.19 -0.40 +6.69
Kazakhstan 339.67 337.42 -0.66 -1.77
Ukraine 26.02 26.02 +0.02 +3.79
South Africa 12.93 12.96 +0.25 +6.18
Kenya 102.70 102.70 +0.00 -0.32
Israel 3.53 3.52 -0.14 +9.23
Turkey 3.43 3.41 -0.80 +2.74
China 6.53 6.53 -0.10 +6.29
India 63.98 63.93 -0.08 +6.20
Brazil 3.10 3.10 -0.01 +4.85
Mexico 17.71 17.66 -0.30 +16.94
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 310 -1 .03 8 07.91 1
All data taken from Reuters at 08:31 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
Reporting by Sujata Rao; Graphic by Karin Strohecker; Editing by Mark Potter