July 23, 2018 / 10:08 AM / in 5 months

EMERGING MARKETS-Turkish lira firms, emerging stocks struggle

LONDON, July 23 (Reuters) - The Turkish lira firmed on Monday after comments from the finance minister cemented expectations of an interest rate hike this week, but emerging equities struggled in the face of new trade war threats.

The lira rose 0.8 percent against the U.S. dollar, leading emerging currency gains, ahead of Tuesday's central bank meeting. Markets expect rates to rise 100-125 basis points after inflation hit a 14-year high in June.

Those expectations were strengthened when finance minister Berat Albayrak was quoted as saying that Turkey would not fight with markets but pursue a "win-win" relationship with them.

Rabobank strategist Piotr Matys said Albayrak's comments were "constructive", highlighting his defence of central bank independence and economic reforms.

But he warned Albayrak would have to follow these positive comments with concrete measures, "and if that happens then confidence amongst investors should be gradually restored".

Matys expects a 100-basis-point rise to 18.75 percent but warned that if Turkey held rates, that would be a negative signal, reigniting concerns about central bank independence.

These concerns had intensified after Turkey's President Tayyip Erdogan made his son-in-law treasury and finance minister. Erdogan has repeatedly called for lower interest rates so Albayrak is being watched to see if he will take a more orthodox line.

Turkish stocks also rose, gaining 1.4 percent to hit a two-week high while the banking sector rallied 2.3 percent.

Sentiment towards emerging assets remained subdued, however, following threats from U.S. President Donald Trump on Friday to impose tariffs on all $500 billion of imported goods from China.

China's yuan retreated 0.4 percent in offshore markets, though Chinese mainland stocks bounced about 1 percent, with investors relieved that new draft rules on banks' wealth management products were unlikely to crimp liquidity.

Meanwhile, Rusal's Hong Kong-listed shares leapt almost 15 percent to a 3-1/2-month high after the U.S. Treasury said it was open to removing the aluminium producer from the U.S. sanctions list.

Russian shares rose 0.7 percent and the rouble firmed 0.6 percent, underpinned by oil prices hurdling $73 a barrel. For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5

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For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1070.44 +0.37 +0.03 -7.60

Czech Rep 1087.07 +2.10 +0.19 +0.83

Poland 2203.44 +20.52 +0.94 -10.47

Hungary 35377.42 +190.90 +0.54 -10.16

Romania 7966.70 +68.61 +0.87 +2.75

Greece 756.10 +1.74 +0.23 -5.77

Russia 1130.56 +15.97 +1.43 -2.07

South Africa 50215.67 -688.53 -1.35 -4.41

Turkey 95366.88 +1284.55 +1.37 -17.31

China 2859.52 +30.25 +1.07 -13.54

India 36561.69 +65.32 +0.18 +7.35

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2018

Czech Rep 25.86 25.85 -0.03 -1.27

Poland 4.32 4.32 -0.03 -3.31

Hungary 325.69 325.14 -0.17 -4.65

Romania 4.65 4.65 -0.06 +0.52

Serbia 117.92 117.81 -0.09 +0.41

Russia 63.09 63.42 +0.52 -8.61

Kazakhstan 345.56 346.56 +0.29 -3.69

Ukraine 26.43 26.43 +0.00 +6.49

South Africa 13.48 13.39 -0.63 -8.30

Kenya 100.65 100.60 -0.05 +2.43

Israel 3.63 3.63 -0.08 -4.16

Turkey 4.76 4.79 +0.73 -20.35

China 6.78 6.77 -0.22 -4.05

India 68.72 68.73 +0.01 -7.12

Brazil 3.77 3.77 -0.03 -12.11

Mexico 19.07 19.02 -0.29 +3.01

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 360 0 .03 7 79.95 1

Reporting by Claire Milhench Additional reporting by Emma Rumney Editing by Louise Ireland

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