LONDON, June 7 (Reuters) - The Turkish lira was among a group of emerging market currencies under pressure on Thursday as traders waited to see if the country’s central bank would assert its independence by raising interest rates for the second time in as many weeks.
A weak dollar meant there were plenty of upward FX moves while emerging market stocks gained for a fifth day in six, but the big set piece was Turkey's 1100 GMT rate decision after its emergency 300 basis point increase on May 23.
Turkey has made moves to simplify its complex interest rate structure since, but overseas investors view a subsequent rate increase as important for the bank to assert its independence.,
The lira fell as far as 4.57 to the dollar, with the cost of volatility hedges also nudging up. Government bonds were in the red again, too, while the Istanbul stock market was at its lowest in more than a year and testing support levels.
"Overall we have been managing our Turkey position, trying to keep risk as low as possible, but it is hard," said Allianz Global Investors emerging market debt portfolio manager Shahzad Hasan.
"The problem is that the central bank is always late and seems to be behind the curve, so it has to do more than the market expects and then the currency stabilises."
A further tightening in monetary policy is expected after annual inflation rose to 12.15 percent in May on the back of high oil prices and this year's near 20 percent slump in the lira.
In a Reuters poll, 11 of 16 economists predicted that the bank would increase its one-week repo rate -- currently 16.5 percent -- with five each forecasting increases of 50 and 100 basis points.
Other struggling currencies included the Indian rupee , which weakened by 0.22 percent despite its central bank raising interest rates the previous day. The currency is Asia's worst performer this year, down almost 5 percent.
South Africa's rand, Mexico's peso and Brazil's real also softened.
South Africa will publish April manufacturing data at 1100 GMT after figures on Tuesday showed its economy has suffered its its worst quarterly contraction in nine years.
In contrast, most of central Europe's big currencies were on the charge, riding in the euro's slipstream after the ECB signalled that it will hold discussions next week on when to end its 2.55 trillion euro stimulus programme.
Poland's zloty, the Czech crown and Hungary's forint all jumped 0.5 percent to hit three-week highs against the dollar, with stocks in Warsaw and Prague also climbing.
A new Reuters poll showed that CEE currencies are expected to firm by 2-3 percent against the euro in the coming year, helped by expectation of robust economic growth.
There was little immediate reaction to news that China's foreign exchange reserves fell slightly in May after the dollar's rebound and Beijing's steps to increase cross-border use of the yuan.
Reserves fell by $14.23 billion to $3.111 trillion, compared with a drop of $17.97 billion in April. Economists polled by Reuters had expected reserves to drop by $25 billion to $3.1 trillion.
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Reporting by Marc Jones Editing by David Goodman