LONDON, Sept 21 (Reuters) - Emerging stocks and currencies fell on Thursday after the U.S. Federal Reserve confirmed it would reverse its stimulus programme from next month and stick to rate hike plans.
On Wednesday, the Fed left interest rates unchanged as expected after concluding a two-day policy meeting, but signalled it still expects one more rate hike by the end of the year despite a recent bout of low inflation.
The move pushed the dollar index to a two-week high overnight and ramped up pressure on many emerging currencies which have seen stellar gains since the start of the year.
Mexico's peso chalked up some of the biggest losses, weakening as much as 0.5 percent. India's rupee skidded to a two-month low while China's yuan eased 0.2 percent.
Turkey and South Africa - two countries vulnerable to Fed moves due to their current account deficits - saw their currencies slip 0.3 percent to the weakest in around five weeks.
And there could be more weakness ahead for currencies across central and eastern Europe, the Middle East and Africa, Rabobank told clients, especially if U.S. President Donald Trump starts gaining ground in his reform pledges.
"Currencies are under pressure against the U.S. dollar after the Fed indicated that a third rate hike at the end of the year is still on the table," Rabobank said.
"(Dollar versus central European currencies) may gain better upside traction in the coming weeks particularly if the relatively hawkish message from the Fed is followed by any signs of progress in implementing tax reforms by the Trump administration."
As benchmark U.S. Treasury yields jumped to their highest levels in six weeks, the average yield spread of emerging market sovereign bonds over U.S. Treasuries on the JPMorgan EMBI Global Diversified index hit its widest in nearly two weeks, further pulling away from three-year lows hit on Monday.
Russia's rouble proved the exception to the rule, snapping a four-day losing streak to strengthen 0.2 percent and shrugging off weaker oil prices.
Stocks fared little better with MSCI's benchmark emerging market stock index down 0.3 percent as bourses in South Korea, Hong Kong, mainland China as well as much of Europe sold off.
In Russia, dollar stocks lost 0.8 percent with financial stocks retreating once again as the central bank said it would rescue B&N Bank. The move to prop up the country's 12th largest lender by assets raised questions about the stability of the sector and the efficiency of the central bank's supervision.
Meanwhile, ratings agency S&P announced it had lowered China's rating to 'A+/A1' with a stable outlook, saying the prolonged period of strong credit growth in the world's second largest economy had increased its economic and financial risks.
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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1109.34 -2.73 -0.25 +28.65
Czech Rep 1047.22 -0.09 -0.01 +13.63
Poland 2479.91 -19.72 -0.79 +27.31
Hungary 38209.54 +101.50 +0.27 +19.39
Romania 7912.13 -5.92 -0.07 +11.67
Greece 765.56 +7.58 +1.00 +18.94
Russia 1115.58 -6.85 -0.61 -3.19
South Africa 49568.97 -6.91 -0.01 +12.91
Turkey 04881.37 -442.31 -0.42 +34.22
China 3358.19 -7.80 -0.23 +8.20
India 32357.36 -43.15 -0.13 +21.52
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.11 26.10 -0.04 +3.45
Poland 4.29 4.28 -0.22 +2.76
Hungary 310.18 308.52 -0.54 -0.44
Romania 4.59 4.59 +0.02 -1.28
Serbia 119.13 118.84 -0.24 +3.54
Russia 58.09 58.25 +0.28 +5.47
Kazakhstan 340.87 340.98 +0.03 -2.12
Ukraine 26.22 26.18 -0.17 +2.97
South Africa 13.33 13.33 -0.03 +2.99
Kenya 103.20 103.30 +0.10 -0.80
Israel 3.52 3.51 -0.12 +9.43
Turkey 3.51 3.50 -0.30 +0.46
China 6.59 6.57 -0.34 +5.32
India 64.76 64.29 -0.73 +4.92
Brazil 3.13 3.13 -0.01 +3.86
Mexico 17.81 17.76 -0.28 +16.31
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 312 3 .08 8 02.97 1
All data taken from Reuters at 09:15 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
Reporting by Karin Strohecker; Editing by Andrew Heavens