LONDON, Nov 7 (Reuters) - Emerging stocks kept a rally on track on Monday, scaling six-year highs, but Middle Eastern bourses reeled from fallout from an anti-graft purge in Saudi Arabia's among business and political elite.
Having taken a breather at the end of last week, MSCI's emerging market index rose 0.6 percent in a second day of solid rises thanks to a lift from Asia, where Hong Kong's bourse jumped 1.2 percent to a decade high.
All three major U.S. equity indexes had closed at record highs overnight.
"Emerging markets had attractive valuations versus developed markets in the past five years, but you never buy a market because it is cheap, you buy a market because it is cheap and there is a catalyst," said Fabiana Fedeli, head of global fundamental equities at Robeco.
"Finally that catalyst has arrived, which is an improvement in earnings, which also comes from the overall global economic cycle turning around."
But the situation was much gloomier for Middle Eastern equity markets, with investors concerned the Saudi crackdown might influence investment flows in the region.
King Salman announced late on Saturday the creation of an anti-corruption committee chaired by Crown Prince Mohammed bin Salman. Dozens of politicians and a number of senior princes have been detained on corruption charges.
Saudi stocks lost 0.6 percent with shares linked to people detained in the investigation leading falls. But Kuwait took the biggest tumble with stocks dropping more than 4 percent - their biggest daily fall in at least a decade. Qatar stocks shed nearly 3 percent, while Dubai fell 1.3 percent.
"Clearly there is a lot of risk associated with the development... risks around is (the Crown Prince) forging appropriate alliances? Is the approach too autocratic? Instability in the region?," said Asha Mehta, portfolio manager at Acadian Asset Management.
"Investors have been tentative to take on that exposure throughout the year."
Diplomatic tensions also flared elsewhere in the region with Lebanon's dollar-bonds tumbling for the second day after Riyadh accused Beirut on Monday of declaring war against it because of aggression by the Iran-backed Lebanese Shi'ite group Hezbollah.
While the tensions left oil prices clinging to 2-1/2 year highs, the dollar rising to its strongest level in 11 days inflicted some pain on emerging currencies.
Turkey's lira tumbled around 1 percent with investors taking little comfort from the U.S. confirming that it was partially resuming issuing visas in Turkey, indicating a cautious improvement in relations between Washington and Ankara.
South Africa's rand weakened 0.7 percent as data showed foreign reserves edged lower in October. Russia's rouble slipped 0.8 percent.
Chinese foreign exchange reserves rose in October for a ninth straight month, but at a slower pace than market expectations, as tighter regulations and a stronger yuan continued to discourage capital outflows.
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Reporting by Karin Strohecker, graphic by Claire Milhench; editing by John Stonestreet